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CA Inter Accounting Rate of Return — practice questions — page 2

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 31–41 of 41.

Return on average capital employed uses what in the denominator?Read the answer and worked solution →EBIT Rs 1,20,000; total assets Rs 10,00,000; current liabilities Rs 2,00,000. ROCE?Read the answer and worked solution →What drawback makes older businesses show a higher ROCE?Read the answer and worked solution →Companies create value when their return on capital is above what?Read the answer and worked solution →Capital budgeting mainly concerns which type of spending?Read the answer and worked solution →Which goal underlies capital budgeting in corporate finance?Read the answer and worked solution →Cost Rs 3,00,000, scrap Rs 60,000, 4 years, total profit Rs 1,44,000. ARR?Read the answer and worked solution →Cost Rs 12,00,000 and scrap Rs 2,00,000. Average investment under ARR?Read the answer and worked solution →A: profit Rs 40,000 on average investment Rs 2,00,000. B: Rs 54,000 on Rs 3,60,000. Higher ARR?Read the answer and worked solution →Rs 9,00,000 is invested and net cash flow is Rs 1,80,000 a year. Payback?Read the answer and worked solution →Which measures do economists prefer over payback for return?Read the answer and worked solution →

Worked practice questions

Return on average capital employed uses what in the denominator?

  1. Closing capital only
  2. Opening capital only
  3. Total sales revenue
  4. Mean opening and closing
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Correct answer: D. Mean opening and closing

ROACE replaces period-end capital with the mean of opening and closing capital.

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EBIT Rs 1,20,000; total assets Rs 10,00,000; current liabilities Rs 2,00,000. ROCE?

  1. 15%
  2. 12%
  3. 10%
  4. 20%
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Correct answer: A. 15%

Capital employed is 10,00,000 - 2,00,000 = 8,00,000, so ROCE = 1,20,000 / 8,00,000 = 15 percent.

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What drawback makes older businesses show a higher ROCE?

  1. Higher tax rates
  2. Larger inventories
  3. Fewer employees
  4. Lower book values
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Correct answer: D. Lower book values

As assets are depreciated their book value falls, which raises ROCE even when cash flow stays the same.

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More Financial Management topics

Sources of FinanceCost of Capital BasicsLeverage (Finance)Working CapitalCapital Structure BasicsDividend BasicsCapital Budgeting BasicsDividend Policies