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ACCA · Question 38 · Performance measurement
Section B — Multi-Task Scenario 3 (Performance Measurement)
Scenario: CareLink NGO Mobile Clinics
CareLink operates a division of mobile telehealth clinics in remote regions. The head office evaluates divisional performance using Residual Income (RI).
Financial Data for the Division:
- Divisional Operating Profit: $450,000
- Total Assets: $3,200,000
- Current Liabilities: $400,000
- Imputed interest cost of capital: 12% per annum
Task:
Calculate the Residual Income (RI) for the division.
(Enter your answer as a whole number)
Section B — Multi-Task Scenario 3 (Performance Measurement)
Scenario: CareLink NGO Mobile Clinics
CareLink operates a division of mobile telehealth clinics in remote regions. The head office evaluates divisional performance using Residual Income (RI).
Financial Data for the Division:
- Divisional Operating Profit: $450,000
- Total Assets: $3,200,000
- Current Liabilities: $400,000
- Imputed interest cost of capital: 12% per annum
Task:
Calculate the Residual Income (RI) for the division.
(Enter your answer as a whole number)
How to approach this question
1. Calculate Capital Employed: Total Assets - Current Liabilities.
2. Calculate the Imputed Interest Charge: Capital Employed × Cost of Capital (12%).
3. Calculate Residual Income: Operating Profit - Imputed Interest Charge.
Full Answer
Step 1: Calculate Capital Employed
Capital Employed = Total Assets - Current Liabilities
Capital Employed = $3,200,000 - $400,000 = $2,800,000
Step 2: Calculate Imputed Interest Charge
Imputed Interest = Capital Employed × Cost of Capital
Imputed Interest = $2,800,000 × 12% = $336,000
Step 3: Calculate Residual Income
Residual Income = Operating Profit - Imputed Interest
Residual Income = $450,000 - $336,000 = $114,000.
Common mistakes
Calculating the imputed interest on Total Assets ($3,200,000) instead of Capital Employed, which would give an incorrect RI of $66,000.
Practice the full ACCA MA — Management Accounting Practice Exam 6
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