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RR_CPA
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Joined: 02 Mar 2009
Location: Canada
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Posted: 08 Jun 2010 at 16:52 \| IP Logged

Economic Value Added (EVA) vs Residual Income.

What is the main difference? Is the only difference is Net Income before taxes or after taxes??? Please explain, its function ans use.

EVA = Net Income (After Taxes) - Required return

Where, Required Retrun = Investment X Cost of Capital

RI= Net Income (for P/L) - required return

Where Required Return = NBV X Hurdle rate

cpa0123
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Joined: 20 Nov 2009
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Posted: 08 Jun 2010 at 17:16 \| IP Logged

It is the same for exam purposes. I have seen many questions using different interpretations. Both income before & after taxes have been considered. Generally, you use Income after taxes. However, you'll have just one of them as available choices.
This had confused me big time while i was studying for BEC. Based on google search, i only found out that the only difference between these 2 methods is that while RI method uses the market value or book value of assets for the capital invested, EVA method uses the market value of total equity and interest-bearing debt (beyond exam scope).

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RR_CPA
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Posted: 09 Jun 2010 at 09:40 \| IP Logged

Thanks cpa0123,

Yes I got the same info from google. I put this question to reconfirm what learnt from book and google. Thank you so much for sharing this info.

How did you prepared for Cost accounting & IT part in BEC, any sugesstions. I am pretty much comfirtable with other parts but these two parts are really pain.

cpa0123
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Joined: 20 Nov 2009
Location: United States
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Posted: 09 Jun 2010 at 11:44 \| IP Logged

I have only used Becker for all my sections. Becker has done a good job in cost accounting though i wouldn't say the same thing about IT and Economics. For IT, I practiced questions from Wiley CD as well. However, IT questions on the actual exam were more simple and included basic questions. Economics was tough, i saw more questions than i had anticipated. Also my exam didn't contain complex questions in cost accounting.
Keep practicing as many questions as possible, you'll be fine.

__________________
FAR-11/21/09 [97]
REG-02/06/10 [95]
BEC-04/03/10 [85]
AUD-07/07/10 [93]
Colorado board
I am done!

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