Requirement-1
To Calculate:
The Residual income for Samsung for the year 2017
Requirement-1
Answer to Problem 3AA
The Residual income for Samsung for the year 2017 shall be19,809,453 millions of Korean won.
Explanation of Solution
The Residual income for Samsung for the year 2017 is calculated as follows:
| Samsung | |
| In millions of Korean won | Year 2017 |
| Beginning Total Assets (A) | 262,174,324 |
| Ending Total Assets (B) | 301,752,090 |
| Average Total Assets (C) = (A+B)/2 | 281,963,207 |
| Target | 12% |
| Target Income (C) =A*B = | 33,835,585 |
| Operating Income (D) | 53,645,038 |
| Residual Income (RI) = D-C = | 19,809,453 |
Concept Introduction:
Residual Income (RI):
Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:
Return on total Assets/ Investment:
The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Requirement-2
To Calculate:
The
Requirement-2
Answer to Problem 3AA
The Return on investment for Samsung for the year 2017 is 19.03%
Explanation of Solution
The Return on investment for Samsung for the year 2017 is calculated as follows:
| Samsung | |
| In millions of Korean won | Year 2017 |
| Beginning Total Assets (A) | 262,174,324 |
| Ending Total Assets (B) | 301,752,090 |
| Average Total Assets (C) = (A+B)/2 | 281,963,207 |
| Operating Income (D) | 53,645,038 |
| Return on Investment (ROI) = D/C = | 19.03% |
Concept Introduction:
Residual Income (RI):
Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:
Return on total Assets/ Investment:
The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Requirement-3
To Calculate:
The Return on investment for Apple for the year 2017
Requirement-3
Answer to Problem 3AA
The Return on investment for Apple for the year 2017 is 17.60%
Explanation of Solution
The Return on investment for Apple for the year 2017 is calculated as follows:
| Apple | |
| $ Millions | Year 2017 |
| Beginning Total Assets (A) | $ 321,686 |
| Ending Total Assets (B) | $ 375,319 |
| Average Total Assets (C) = (A+B)/2 | $ 348,503 |
| Operating Income (D) | $ 61,344 |
| Return on Investment (ROI) = D/C = | 17.60% |
Concept Introduction:
Residual Income (RI):
Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:
Return on total Assets/ Investment:
The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:
Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:
Requirement-4
To Indicate:
The Company which has higher Return on investment for the year 2017
Requirement-4
Answer to Problem 3AA
Samsung Company has the higher Return on investment for the year 2017
Explanation of Solution
The Return on investment for Samsung for the year 2017 is 19.03%
The Return on investment for Apple for the year 2017 is 17.60%
Hence, Samsung Company has the higher Return on investment for the year 2017
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Chapter 24 Solutions
Fundamental Accounting Principles
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