Advanced: Discussion relating to historical and current cost asset valuations for performance evaluation A group of companies has hitherto used historical costing in the performance evaluation of its investment centres.

Whilst a few of those investment centres (class A) have replaced their fixed assets fairly regularly, the majority (class B)

have, amongst their fixed assets, plant and equipment bought at a fairly even rate over the past 25 years. During that time their manufacturing technologies have changed very little, but these technologies are expected to change much more rapidly in the near future.

The group now wishes to evaluate its investment centres on a current cost basis.

You are required to prepare notes for a paper for the executive management committee to show

(a) the impact for performance evaluation of the difference between class A and class B investment centres that are likely to result from the change to a current cost basis in respect of

(i) their depreciation charges, (7 marks)

(ii) their relative standing as measured by their return on capital employed; (7 marks)

(b) what steps would be needed to revalue the plant and equipment.