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I watched your lectures. Notional interest is actually imputed interest sir?
There’s a question
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 the division?
Correct answer is 40,000
Sir i dont get the logic. Please explain me in simple words.
Yes, notional interest is imputed interest.
The RI is calculated using the assets controlled by the division and the profits controlled by the division.
The head office required a 10% return. 10% x 400,000 = $40,000