Asked by Larry Egerton on May 20, 2024
Verified
Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations?
A) It is consistent with the computation of net operating income, which includes depreciation as an operating expense.
B) It is consistent with the balance sheet presentation of plant and equipment.
C) It eliminates the age of equipment as a factor in ROI computations.
D) It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI.
Gross Cost
The total cost incurred before deducting any discounts, allowances, or rebates.
Operating Assets
Assets that are used for the day-to-day functioning of a business, excluding investment and non-operational assets.
Return On Investment
A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the profit from an investment by the cost of the investment.
- Understand the accounting methods for land and assets intended for expansion within financial analysis.
- Ascertain the consequences of employing Return on Investment (ROI) as a criterion for performance evaluation and its influence on decisions made by management.
Verified Answer
Learning Objectives
- Understand the accounting methods for land and assets intended for expansion within financial analysis.
- Ascertain the consequences of employing Return on Investment (ROI) as a criterion for performance evaluation and its influence on decisions made by management.
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