ACCA PM · Chapter 14 · Question 2 of 10
Division D has capital employed of $4,000,000 and controllable profit of $640,000. The company's cost of capital is 12%. What is the division's residual income (RI)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $160,000
Explanation
Imputed interest = 12% x $4,000,000 = $480,000. RI = controllable profit - imputed interest = $640,000 - $480,000 = $160,000.
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