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Dear, tutor.
After reading the lectures, I still have questions about the residual income computation.
Residual Income = Traceable Profit – Imputed Interest Charge on traceable Investment. Right?
but, should we take all assets or only which we control?
Example:
– Rate of Return = 10%
– Assets specifically relating to the division, which are managed by head office amount to 800,000$
– Other assets totalling 400,000$ are controlled by the division.
I think that imputed interest charge is 10%*800,000=80,000$. Am I right or not?
If we a measuring the performance of the division, then we look at all the assets. If we are measuring the performance of the manager, then we look at just the profit and assets controlled by the manager.
(When you write ‘reading the lectures’ I hope you mean that you have watched the lectures and not just used the lecture notes. The notes are simply lecture notes and should not be used without watching the lectures 🙂 )
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