1. In its most recent year, HiFlyer Plc’s return on capital was 50% on the reported invested capital of $2 billion. An analyst decides to treat Research and Development expenditure as capital expenditure and estimates the value of the research asset to be $1 billion. The Research and Development expenditure was $300 million and the amortisation of the research asset was $200 million. There is no tax. a. Re-estimate the return on capital of HiFlyer.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
1. In its most recent year, HiFlyer Plc’s return on capital was 50% on the reported
invested capital of $2 billion. An analyst decides to treat Research and
Development expenditure as capital expenditure and estimates the value of the research asset to be $1 billion. The Research and Development expenditure
was $300 million and the amortisation of the research asset was $200 million.
There is no tax.
a. Re-estimate the return on capital of HiFlyer.
Step by step
Solved in 2 steps
