economic value added managerial accounting prepared by diane tanner university of north florida...
Post on 13-Jan-2016
212 Views
Preview:
TRANSCRIPT
Copyright ©2015. University of North Florida. All rights reserved.
Economic Value Added
Managerial Accounting
Prepared by Diane TannerUniversity of North Florida
Chapter 26
Evaluation Measurement Options
Methods which help solve over-investment and under-investment problems Residual income Balanced scorecard
Goes beyond financial measures to include multiple performance dimensions
Economic value added Makes investing in longer term projects
beneficial
2
Economic Value Added (EVA)
A variation of residual income Potentially solves both over- and under-
investment problems Compels investment in the range between
required rate of return and current ROI
3
How EVA Differs from Residual Income
Removes the incentive for management to avoid spending money on enhancements which impact the long-term business operations Treats certain costs as assets instead of the
GAAP-mandated treatment as expenses Considered accounting distortions
R&D Employee training costs Customer development costs
4
Calculating EVA Calculate NOPAT and invested capital in the
same manner as with residual income Draw accounts for potential intangibles and
amortize for all years involved Calculate the accounting distortions effect on net
income, and adjust for income taxes. Add or subtract from NOPAT depending on the effect.
Calculate the accounting distortions effect on invested capital, and add to invested capital
5
NOPAT +/- [Acctg Distortions, nt]
Invested Capital +Acctg distortions‒ WACCEVA =
6
The End
top related