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Hi Sir John,
Firstly I would like to ask what does it mean imputed interest charge? I watched your video ROI/RI You explained only notional interest such as considered, but how does it look like in real life? Does it mean notional is maybe happen, but “imputed interest” not yet happend?
Next Q: Biscuits and Cakes – BPP Kit.
Part e)Explain any behavioral problems that will result if the company’s senior management insist on using solely ROI?Answer:There is problems between staff and management.
Staff- they can get demotivated, because after deducting Head office costs, they cannot reach a Target ROi, which is 20%.
– Therefore they don’t get staff bonus.Q: This question has 4 marks, do I need speak about Staff and Management both? What would you say about management behavioural here? Do I need give here also undelying computiion with Roi using the new method as per A)?
Thank you for your answer.
Q: Discuss both performance using both ROI and RI, in part C) do I need to underly the computation ROI using the old method?
Q:And is all Divisional Net Assets consider as Investment as whole figure? I mean sometimes the examinator is saying how much is used for the investment, but here is only figure Divisional Net Assets!?Imputed is simply another word for notional. It is ‘pretend’ interest simply for measuring performance – they are not actually charging the division with interest.
Biscuits and Cakes: You don’t need to talk about management (because they are the people posing it). What you do need to write about is why they should only use controllable profit to assess the divisions performance, and why they should only use controllable profit to reward staff (i.e. calculate bonuses). You do not need to specifically refer to the calculation in part (a), but if in the exam you had an answer for part (a) then certainly mention it.
For part (c) you don’t need to discuss the old method.
I am not quite sure what you mean by your final question. If you were being asked about whether some new investment was worthwhile, then that is what you would look at. However in this question you are being asked about the performance of the whole division.
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