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CA Inter Accounting Rate of Return — practice questions

Explore 41 free Accounting Rate of Return questions in CA Inter Financial Management. Open each question or exercise to read its content, reference answers and available explanation.

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Accounting Rate of Return questions and exercises with answers

Showing questions 1–30 of 41.

Which key factor does the accounting rate of return method disregard?Read the answer and worked solution →How is the accounting rate of return normally expressed?Read the answer and worked solution →A project is acceptable under ARR when its ARR is what compared with the required rate?Read the answer and worked solution →Comparing investments by ARR, which is more attractive?Read the answer and worked solution →What is the main advantage of the ARR method?Read the answer and worked solution →ARR is built on evaluation of which measure?Read the answer and worked solution →Why can ARR be manipulated by management?Read the answer and worked solution →ARR can mislead when evaluating investments that differ in what respect?Read the answer and worked solution →Which formula gives average investment in the ARR method?Read the answer and worked solution →A machine costs Rs 80,000 and has a scrap value of Rs 20,000. Average investment?Read the answer and worked solution →Total profit after tax is Rs 90,000 over 5 years. Average annual profit?Read the answer and worked solution →Average profit is Rs 18,000 and average investment Rs 50,000. ARR?Read the answer and worked solution →Cost Rs 5,00,000, nil scrap, average profit Rs 50,000. ARR on average investment?Read the answer and worked solution →Over 3 years revenue is Rs 3,00,000, expenses with depreciation Rs 2,10,000. Average return?Read the answer and worked solution →ARR is 15% and the required rate is 12%. What is the decision?Read the answer and worked solution →Two projects have ARR of 14% and 18% and similar risk. Which is preferred?Read the answer and worked solution →An ARR of 7% means the project earns about what per 100 invested yearly?Read the answer and worked solution →What is another name for the accounting rate of return?Read the answer and worked solution →Which item is deducted from incremental revenue when computing ARR profit?Read the answer and worked solution →What does the ARR method do about risk in long-term forecasts?Read the answer and worked solution →The payback period method does not allow for which concept?Read the answer and worked solution →All else equal, which payback period is preferable?Read the answer and worked solution →A Rs 6,00,000 project gives Rs 1,50,000 net cash flow a year. Payback period?Read the answer and worked solution →Outlay Rs 1,00,000; inflows Rs 40,000, 50,000, 60,000 in years 1 to 3. Payback?Read the answer and worked solution →What does payback ignore that can make a valuable project look poor?Read the answer and worked solution →Which method fixes payback's neglect of time value by discounting cash flows?Read the answer and worked solution →What does payback intuitively measure?Read the answer and worked solution →In what unit is payback period usually expressed?Read the answer and worked solution →How is ROCE calculated?Read the answer and worked solution →In general, capital employed is represented by which expression?Read the answer and worked solution →

Worked practice questions

Which key factor does the accounting rate of return method disregard?

  1. Time value of money
  2. Depreciation charged
  3. Net income earned
  4. Size of the investment
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Correct answer: A. Time value of money

ARR works on accounting profits and never discounts them, so the timing of returns is ignored.

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How is the accounting rate of return normally expressed?

  1. A percentage return
  2. A time period
  3. A rupee amount
  4. A cash multiple
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Correct answer: A. A percentage return

ARR divides average profit by average investment, so the result is a percentage.

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A project is acceptable under ARR when its ARR is what compared with the required rate?

  1. Equal or greater
  2. Half of that rate
  3. Below that rate
  4. Unrelated to it
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Correct answer: A. Equal or greater

The decision rule accepts a project whose ARR meets or beats the required rate of return.

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