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Accounting Rate of Return

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Accounting Rate of Return

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 8, 2017 at 6:35 pm #385399
    cbstubbs
    Member
    • Topics: 4
    • Replies: 2
    • ☆

    Please Help!

    Still unable to get this correct:

    Calculate accounting rate of return

    Initial Cost: $300,000
    Expected life:5yrs
    Estimated Scrap value: $20,000
    Revenue from project: $120,000 per yr
    Incremental cost of project: $30,000 per yr
    Cost of Capital: 10%

    May 9, 2017 at 6:48 am #385450
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    The total operating cash flows over the 5 years is 5 x (120,000 – 30,000) = 450,000
    The total depreciation over the 5 years is 300,000 – 20,000 = 280,000
    Therefore the total profit over the 5 years is 450,000 – 280,000 = 170,000
    Therefore the average profit per year = 170,000 / 5 = 34,000

    The average book value is (300,000 + 20,000) / 2 = 160,000

    Therefore the ARR = 34,000 / 160,000 = 21.25%

    Have you watched my free lectures on this? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.

    May 9, 2017 at 2:05 pm #385492
    cbstubbs
    Member
    • Topics: 4
    • Replies: 2
    • ☆

    Your response is Greatly Appreciated!

    I have watched the lectures, but must have missed that one

    Thanks again for your help

    May 9, 2017 at 3:39 pm #385503
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    You are very welcome 🙂

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    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Accounting Rate of Return’ is closed to new replies.

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