Exercise 12-13 The following income statements and other information are availab

Question

Exercise 12-13

The following income statements and other information are available for the Schneider Company:

Calculate EVA for 2014. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes them over three years, including the year they are incurred. For external reporting purposes, research and development is expensed in the year incurred, as indicated in the income statements above. (Round answer to the nearest whole dollar, e.g. 5,725.)

Explanation / Answer

Calculation of Net operating profit after tax of 2014 Particulars Amount ( In Dollars ) Sales 378200000 Less cost of goods sold 208010000 Gross margin 170190000 Less:       Selling and administrative costs 26474000       Research and development amortisation expenses ( Note 1 ) 12609333.33 Income from operations 131106667 Less taxes on income 30 % on Income form operations = 128588000*30% ( Tax Rate = Note 2 ) 39332000 Net income 91774667 Capital ( Note 3 ) = 572700000 Cost of Capital = 12% Net operating profit after tax = 91774666.67 Calculation of EVA EVA = Net operating profit after tax - Capital * Cost of Capital 91774666 - 572700000 * 12 % EVA = 23050666 Note 1 Calculation of Research and Development cost capital value and amortising the same for 3 years Year Particulars Amount ( In Dollars ) 2012 Capitalisation value 9795000 Amortise it for 3 years 9795000/3 Expenses to be booked per year till 3 years 3265000 2013 Capitalisation value 12905000 Amortise it for 3 years 12905000/3 Expenses to be booked per year till 3 years 4301666.667 2014 Capitalisation value 15128000 Amortise it for 3 years 15128000/3 Expenses to be booked per year till 3 years 5042667 2014 2013 2012 Research and development expense given in the question 15128000 12905000 9795000 Calculation of amortisation expenses for 2014 and unamortised value of Research and Development cost at the end of the year 2014. Amounts ( In Dollars ) Year Particulars Opening balance Purchases Amortisation Closing balance 2012 Amortisation expenses for 2012. 0 9795000 3265000 6530000 2013 Amortisation expenses for 2012 and 2013. 6530000 12905000 7566666.667 11868333 2014 Amortisation expenses for 2012, 2013 and 2014. 11868333 15128000 12609333 14387000 Total 37828000 23441000 Research and Development amortisation expenses for 2014 will be = 12609333.33 Closing balance of Research and Development cost at the end of 2014 will be = 34563000 Note 2 Calculation of tax rate for 2014 Tax Rate = Tax expenses / Net Income before tax for 2014 Tax expenses for 2014 = 38576400 Net profit for 2014= 128588000 Tax rate = 38576400 / 128588000 30% Note 3 Capital = Total Assets - Noninterest-bearing current liabilities Total assets = Total assets balance given the question + Closing balance of Unamortised value of Research and Development cost Total assets = 717000000 + 14387000 Total assets = 731387000 Capital =717000000 - 144300000 Capital = 572700000

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