CAPITAL PRODUCTIVITY

System

I wonder if someone can help.

I am doing a case study for reports and returns and have to comment on capital productivity. The company is Ltd and so far we have only looked at sole traders so the layout of P & L and Balance Sheet is a bit different.

It says their premises were revalued at 140000 and if sold would have to pay 20000 tax. In the CAPITAL AND RESERVES section of the BS it is showing a REVALUATION RESERVE of 120000 ( I assume the diff between the value and tax liabity), which would account for the decrease I have on capital productivity. However, would the increase in value of the premises not be included the value of the fixed assets? (Based on the two years figures I have it doesn't appear to be).

Sorry if this is a bit vauge but the info i have to work from is pretty vauge! :?

System

Re:CAPITAL PRODUCTIVITY

This sounds interesting.
When we looked at Capital Productivity on a different course my students were looking at output in terms of the capital investment.
This is quite different from your suggestion and may be something that your lecturer had not intended but if I start with a couple of simple examples you have the oppoortumity to get back to me to say so.

LABOUR PRODUCTIVITY in a car plant could be measured in terms of output of cars per person per week or per labour hour.

CAPTIAL PRODUCIVITY in a similar plant could be output of cars per machine or per £1000 of investment in machines.

This is a fascinating area of performance manmagement and at post-graduate level becomes a complex area where models mixing all the key inputs that are used as a way of seeing how the productivity of a country has changed from one year to the next.

System

Re:CAPITAL PRODUCTIVITY

Im doing a degree and I have recently done revaluations, and yes if the revaluation reserve relating to that asset has increased by 120,000 then the net book value (or carrying amount as we should say now) should defo have been increased by this. I certainly could not think of anything else except an d incomplete set of accounts e.g. the asset was sold and someone has forgotten to transfer the revaluation reserve to retained profits.

Capital productivity isn't really a term I have been introduced to, when I have my accounting hat on its usually discussed in terms of "return on capital employed", and in management accounting and financial markets its usually discussed as meeting the minimum "cost of capital".

Its an interesting point that revaluations upwards would have a detrimental effect on return on capital employed.