ROI

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June 4, 2016 at 1:09 pm #319326
Saimon
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A company have an asset of $100000
useful life 5 year

QUESTION :

1) when calculating ROI what would be the value of capital employed

“mid year value (average of the asset by taking “opening+closing/2”)

or

net book value (value of the asset at year end after deducting depreciation)

2) which one is the best and which one should i always choose
June 4, 2016 at 1:15 pm #319327
Saimon
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another question on ROI

a company has 3 asset and all of them have opening and closing value, So when calculating ROI should i choose “average value” or “closing value” of this asset as capital employed……?????
June 4, 2016 at 4:37 pm #319366
John Moffat
Keymaster
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There is no rule – either in the exam or in ‘real-life’. There are arguments for using the opening value or the closing value or the average value.

Usually in the exam the question will either tell what to use, or else will only have information about either the opening or the closing value (in which case you obviously have no choice).

If it is not clear from the question then you would get the marks whichever you used.
(The opening value is usually the better one on the basis that it is the value at the start of the year that generate the profits for the year, but again this is not a rule)
June 6, 2016 at 9:36 am #319783
Saimon
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How to measuring divisional manager performance when

“Head office has increased wages pay of all division by 15%”

should i exclude whole wages cost or only the 15% in calculating ROI
June 6, 2016 at 10:45 am #319789
Saimon
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and ROI is measured based on controllable profit
June 6, 2016 at 11:05 am #319795
Saimon
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Actually i am trying to say that if head office increase any of the cost of division which are controllable by manager, then how am i going to treat this increase when calculating ROI

ROI is measured by controllable profit
June 6, 2016 at 11:40 am #319818
John Moffat
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You would ignore the wages completely because they are no longer under the control of the division.
June 6, 2016 at 7:24 pm #320031
Saimon
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So this techniques will apply to all cost changed by the head office no matter cost is controlled by manager or not
June 7, 2016 at 8:13 am #320171
John Moffat
Keymaster
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If they are changed by head office then the manager no longer controls them.
June 7, 2016 at 8:38 am #320191
Saimon
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Thank u sir
June 7, 2016 at 11:12 am #320254
John Moffat
Keymaster
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You are welcome 🙂
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