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Imputed interest

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Imputed interest

  • This topic has 1 reply, 2 voices, and was last updated 3 months ago by John Moffat.
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  • April 21, 2022 at 12:39 pm #654194
    zaramujeeb
    • Topics: 15
    • Replies: 2
    • ☆

    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

    April 21, 2022 at 4:54 pm #654226
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49902
    • ☆☆☆☆☆

    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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