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General Accounting Discussions: Calculating Return on total assets ratio

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    • CommentAuthoralexgn
    • CommentTimeSep 17th 2007
     
    We have adopted a formula to calculate the return on total assets, which is

    (Profit from ordinary activities before income tax + Borrowing costs) / Average total assets.

    The formula is simple and straight forward.
    What I am not clear is how the average total asset is calculated.

    In our prescribed book it stated that to calculate average total assets, the ending total assets are added to the beginning total assets, the sum is divided by two.

    Here’s an example

    2005 2006 2007
    175 179 190

    For 2007, it is (190+179) / 2
    For 2006, it is (175+179) / 2

    What about 2005? How do we determine the average for 2005? The required data is not provided. Should I just use 175, and not the average?
    • CommentAuthorcarlos2019
    • CommentTimeSep 17th 2007
     
    Since you do not have a number for 2004, you cannot take an average, so you just have to use 175.

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