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Question on ACCA F5 Performance Managent September/December 2017 (SPORT CO)

Forums › ACCA Forums › ACCA PM Performance Management Forums › Question on ACCA F5 Performance Managent September/December 2017 (SPORT CO)

  • This topic has 1 reply, 2 voices, and was last updated 9 months ago by John Moffat.
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  • April 20, 2020 at 4:20 am #568795
    qqqqqlo
    • Topics: 1
    • Replies: 0
    • ☆

    (SPORT CO)

    C E
    $’000 $’000
    Controllable profit 2,124·5 4,788
    Less: imputed charge on assets at 12% (1,320) (3,240) ––––––– ––––––
    Residual income 804·5 1,548 ––––––– ––––––

    From the residual income results, it can clearly be seen that both divisions have performed well, with healthy RI figures of between $0·8m and $1·55m. The cost of capital of Sports Co is significantly lower than the target return on investment which the company seeks, making the residual income figure show a more positive position.

    How to calculate the imputed charge on assets at 12%?

    April 20, 2020 at 1:10 pm #568828
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 41599
    • ☆☆☆☆☆

    The question says that they are using the average divisional net assets.

    The average controllable net assets for C are (13,000 + 9,000) / 2 = 11,000.
    12% x 11,000 = 1,320.

    The average controllable net assets for E are (24,000 + 30,000) / 2 = 27,000.
    12% x 27,000 = 3,240.

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