Question

Which of the following are correct formulae for determining Capital Employed?

P. Capital + Reserves + Non-current Liabilities less Goodwill (existing in the Balance Sheet) less non-trade investment less fictitious assets.

Q. Capital + Reserves less Goodwill (existing in the balance sheet) less trade investments less Fictitious assets.

R. Total assets less Goodwill (existing in the balance sheet) less Non-trade investments less Fictitious assets less Outside Liabilities (Current and Non-current).

S. Total assets less Goodwill (existing in the balance sheet) less Non-trade investments less Fictitious assets less Outside Current Liabilities.

Choose the most appropriate option based on the above statements.

Options

• P and Q

• P and R

• Q and S

• R and S

Answer 1

P and R

Explanation:

Formula P uses the liabilities approach, calculating Capital Employed by adding long-term debt (Non-current Liabilities) to owners’ equity (Capital + Reserves). Formula R uses the assets approach by taking Total Assets and subtracting all outside liabilities. Both formulas correctly deduct non-operating items like existing goodwill, non-trade investments, and fictitious assets to isolate the exact capital actively used in core business operations.