Return on capital employed using average capital employed

Steps:

• Subtract profit from reserves to find opening reserves: $160,000 -$120,000 = $40,000.
• Opening capital employed = share capital + opening reserves + non-current liabilities = $150,000 +$40,000 + $250,000 =$440,000.
• Closing capital employed = share capital + reserves + non-current liabilities = $150,000 +$160,000 + $250,000 =$560,000.
• Average capital employed = ($440,000 +$560,000) / 2 = $500,000; ROCE =$120,000 / $500,000 × 100% = 23.5%.

Why A is correct:

• ROCE formula uses average capital employed (opening + closing / 2) to account for changes during the year, per standard accounting practice.

Why the others are wrong:

• B uses only share capital + non-current liabilities ($400,000), ignoring reserves.
• C uses equity only ($310,000), which is return on equity, not capital employed.
• D uses an arbitrary smaller base ($300,000), violating the capital employed definition.

Final answer: A