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MCQ

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › MCQ

  • This topic has 1 reply, 2 voices, and was last updated 6 months ago by John Moffat.
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  • December 4, 2021 at 10:26 am #642477
    SarahSyed
    • Topics: 10
    • Replies: 1
    • ☆

    A company has two divisions. The divisions are identical type of machines that operates for production. One division was set up four years ago and the other was set up one year ago. Head office appraises the division using both return on the investment (ROI) and residual income (RI).

    Which of the following statements is correct in relation to the outcome of the appraisal for each division?

    The correct answer is: Both ROI and RI will favour the older division

    My question is that why do ROI and RI favour older divisions?

    December 5, 2021 at 7:25 am #642538
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49602
    • ☆☆☆☆☆

    It is because the older the machine is then the lower will be the book value of the machines (because they will have been depreciated more).

    If the assets used in the calculation of the ROI and the RI are lower, then both the ROI and the RI will be higher.

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