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The average rate of returm is:
Average profits/ Average investment. . . where average investment is the. . .opening investment + scrap value/ 2
However in the the kaplan exam kit ‘q19 armcliff co’ the average capital employed has been calculated by adding the book values of the asset over its life of 4 years and then dividing by 4.
This has really confused me and i would appreciate it if anyone could explain this to me
Thankyou
There is no precise way of calculating the ARR.
The Kaplan way in Armcliffe is sensible and acceptable.
However more usually just us the investment as being the average of the originial cost and it he final sale/scrap value. You will get full marks whichever way you do it because there is no precise definition.
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