The following information is extracted from Automotive Division for the year ended 31st December 2021: Statement of Financial Position USD Non-current Assets 120,000 Current Assets 67,000 TOTAL ASSETS 187,000 Divisional Equity 93,700 Long Term Liabilities 75,000 Current Liabilities 18,300 TOTAL EQUITY & LIABILITIES 187,000 Income Statement USD Revenue 115,000 (-) Cost of Goods Sold (COGS) (48,000) (-) Other operating expense (10,000) Operating Profit 57,000 (-) Interest Paid (17,000) Profit Before Tax 40,000 The cost of capital for the division is estimated at 8% each year. You are required to calculate: i) Calculate the divisional Return on Investment (ROI) for the year ended 31st December 2021 using net assets approach. ii) Calculate the Residual Income (RI) for the year ended 31 December 2021.
The following information is extracted from Automotive Division for the year ended 31st December 2021: Statement of Financial Position USD Non-current Assets 120,000 Current Assets 67,000 TOTAL ASSETS 187,000 Divisional Equity 93,700 Long Term Liabilities 75,000 Current Liabilities 18,300 TOTAL EQUITY & LIABILITIES 187,000 Income Statement USD Revenue 115,000 (-) Cost of Goods Sold (COGS) (48,000) (-) Other operating expense (10,000) Operating Profit 57,000 (-) Interest Paid (17,000) Profit Before Tax 40,000 The cost of capital for the division is estimated at 8% each year. You are required to calculate: i) Calculate the divisional Return on Investment (ROI) for the year ended 31st December 2021 using net assets approach. ii) Calculate the Residual Income (RI) for the year ended 31 December 2021.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The following information is extracted from Automotive Division for the year ended 31st
December 2021:
| USD | |
| Non-current Assets | 120,000 |
| Current Assets | 67,000 |
| TOTAL ASSETS | 187,000 |
| Divisional Equity | 93,700 |
| Long Term Liabilities | 75,000 |
| Current Liabilities | 18,300 |
| TOTAL EQUITY & LIABILITIES |
187,000 |
Income Statement
| USD | |
| Revenue | 115,000 |
| (-) Cost of Goods Sold (COGS) | (48,000) |
| (-) Other operating expense | (10,000) |
| Operating Profit | 57,000 |
| (-) Interest Paid | (17,000) |
| Profit Before Tax | 40,000 |
The cost of capital for the division is estimated at 8% each year.
You are required to calculate:
i) Calculate the divisional
ii) Calculate the Residual Income (RI) for the year ended 31 December 2021.
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