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John Moffat.
John Moffat.-
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zaramujeeb
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Traceable residual income for a division is being calculated. The following information is available
(1) Head office requires a rate of return of 10% for the division
(2) Properties specifically relating to the division, which are managed by head office amount to $800,000
(3) Other assets totalling $400,000 are controlled by the division
What is the imputed interest charge to be used in the traceable residual income computation for te division?
I solved it as 800000×10% plus 40000×10%= 120000
The only thing I don’t understand is should i used RI formula? But then the profit value is not given
John Moffat
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The question does not ask for the residual income, it asks what the imputed interest charge will be. For this, the profit is irrelevant.
The interest will be 10% x $400,000 = $40,000. (the assets managed by head office are not relevant when calculating the traceable residual income for the division).
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