Page 311 - Microsoft Word - 00 ACCA F2 Prelims.docx

Performance measurement techniques

Residual Income (RI) = Controllable Profit – Notional interest on capital

RI resolves the dysfunctional aspect of RI does not facilitate comparisons
the ROI measure. between divisions.

RI reduces ROCE's problem of rejecting RI does not relate the size of a division's
projects with a ROCE in excess of the profit to the assets employed in order to
company’s target, but lower than the obtain that profit.
division’ current ROCE.

The cost of financing a division is brought RI can also mislead, as it increases over
home to divisional managers. time.

Illustrations and further practice

Now try TYU questions 2 and 3 from Chapter 17

305