Survey of Accounting (Accounting I)
Solutions
Survey of Accounting (Accounting I)
Residual income
Based on the data in Exercise 14-10, assume that management has established a 10% minimum acceptable rate of return for invested assets. a. Determine the residual income for each division. b. Which division has the most residual income?
Concept Introduction:
Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.
Residual Income: That income which is more than the normal income of that type of organization.
Requirement-1:
To Identify:
Determine the residual income.
Following table help us to identify the residual income of the divisions:
| Divisions | Retail | Commercial | Internet |
| Investment | 40000000 | 75000000 | 1800000 |
| Profit | 8000000 | 12750000 | 270000 |
Concept Introduction:
Return on investment: In this we divide the total return or profit with the investment into the assets of organization. It is the best way of calculating the % of return in the business.
Residual Income: That income which is more than the normal income of that type of organization.
Requirement-2:
To Identify:
Which division has highest residual income?
Chapter 14 Solutions
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