• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

ACCA Webinars: How to earn marks in Strategic Professional Exams. Learn more >>

20% off BPP Books for ACCA & CIMA exams - Get BPP Discount Code >>

PERFORMANCE MEASUREMENT-RESIDUAL INCOME

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › PERFORMANCE MEASUREMENT-RESIDUAL INCOME

  • This topic has 3 replies, 2 voices, and was last updated 2 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 17, 2022 at 12:55 pm #655884
    Eunice03
    • Topics: 43
    • Replies: 38
    • ☆☆

    A division is considering investing in capital equipment costing $2.7 million. The useful economic life of the equipment is expected to b 50yrs,with no resale value at the end of the period. The forecast ROI is 15% per annum before depreciation. The division’s cost of capital is 7%?

    The answer was
    Divisional profit before depreciation=2.7m x 15%=$405,000 per year
    Less depreciation=$2.7m x1/50=$54,000 per year
    Divisional profit after depreciation=$351,000
    Imputed interest=$2.7m x 7%=$189,000
    Residual income= $162,000

    Good day sir,Pls I don’t understand why they used the capital equipment value without depreciation to calculate the imputed interest.

    May 17, 2022 at 4:58 pm #655905
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 50003
    • ☆☆☆☆☆

    The forecast divisional profit has been calculated after depreciation.

    The imputed interest is calculated on the amount that they are considering investing, which is $2.7M.

    May 18, 2022 at 8:49 pm #655998
    Eunice03
    • Topics: 43
    • Replies: 38
    • ☆☆

    Thank you sir

    May 19, 2022 at 7:45 am #656010
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 50003
    • ☆☆☆☆☆

    You are welcome.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

ACCA Introducing professional skills into the Options exams

ACCA Professional Skills Webinar – Register now

Donate

If you have benefited from OpenTuition please donate.

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • John Moffat on Index Numbers – ACCA Management Accounting (MA)
  • John Moffat on Relevant cash flows for DCF Taxation (example 4) – ACCA Financial Management (FM)
  • John Moffat on The cost of capital – The cost of equity – ACCA Financial Management (FM)
  • sohaib.ahmad on Index Numbers – ACCA Management Accounting (MA)
  • daarmc on Relevant cash flows for DCF Taxation (example 4) – ACCA Financial Management (FM)

Copyright © 2022 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy