Problem 13.33 (Return on sales/capital employed before and after revaluation adjustments). The following are the financial data for the past year of two subsidiary companies A Ltd. and B Lid. Rs. 000 A Ltd. B Lid Sales 11,760 11.040 Depreciation 2,240 1.600 Other Costs 6,400 5,120 Fixed Assets at cost 22,400 19,200 Accumulated Depreciation 15,680 6,400 Working Capital 2,560 1.600 Depreciation is calculated by the straight line method. Holding company assesses managerial performance on the Return on Capital Employed (ROCE). For a management review, it has been decided that fixed assets should be revalued at replacement and using the prices indices, assuming cost at 100: A Ltd. 160 B Ltd. 120 In addition the following adjustment are to be made to B Lid's result to equate with the treatment given by A Ltd. (i) A Ltd. bought computer last year for Rs. 11,20,000 (seven-year life) but B Ltd. leased identical computer at an annual rental of Rs. 1,92,000. (ii) A Ltd. spent Rs. 1,60,000 on a plant overhaul which B Ltd. would not require at last three years. (iii) A Lid. and B Ltd. both spent Rs. 4,80,000 on advertising. A Ltd charged all to last year's accounts but B Ltd. carried forward 50% to the current year. (iv) A Lid. and B Ltd. both spent Rs. 3,20,000 in each of the past two years on research; A Ltd. charged each year's expense as incurred but B Ltd. spread charge equally over four years. As the management accountant, you are required to: (a) Calculate and compare the initial return of the two companies analysing difference due to profitability on sales and intensity of asset use. (b) Calculate and compare the initial return of the two companies analysing difference B Ltd.'s figures for the other factors given, commenting briefly on the results. Ignore taxation