CIMA Exam CIMAPRO19-P02-1 Topic 5 Question 78 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam

Question #: 78
Topic #: 5

Division A is an investment centre with assets of $7.3 million. The following is an extract from the annual budget for division A:

The cost of capital is 14%.

Calculate the residual income for division A.

A$808,000

B$1,727,800

C$358,000

D$2,008,000

Show Suggested Answer

Suggested Answer: A, C, D

by Geoffrey at Dec 08, 2023, 01:58 PM

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Margarett

2 months ago

This question is like a riddle wrapped in an enigma, wrapped in a tortilla. But hey, at least it's not a calculus problem, right? I'm just gonna go with C and hope for the best.

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Alishia

15 days ago

I'm going with D, it just feels right to me.

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Lizbeth

22 days ago

I'm leaning towards A, but I'm not entirely sure.

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Twana

1 months ago

I think I'll go with B, it seems like the most reasonable choice.

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Rory

2 months ago

Wait, wait, wait. How do we know the target profit is $1,022,000? Is that just some magic number, or is there a formula we're supposed to use? I'm feeling a bit lost here.

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Deangelo

8 days ago

Exactly! You're on the right track. Good job!

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Alesia

13 days ago

Got it, thanks for explaining. So, the answer would be A) $808,000 then.

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Delsie

2 months ago

So, we use the formula: Residual Income = Net Operating Income - (Assets x Cost of Capital). That's how we get the target profit.

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Ria

2 months ago

Don't worry, the target profit is usually set by management based on various factors. It's not a magic number.

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Elbert

2 months ago

Aha! I've got it. The target profit is $1,022,000, and the actual profit is $664,000. So the residual income is the difference, which is $358,000. Easy peasy, lemon squeezy!

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Helene

1 months ago

Nice job! You nailed it with the calculation.

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Catarina

1 months ago

That's correct! The residual income for division A is $358,000.

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Ula

2 months ago

Hmm, I'm not sure about this one. The cost of capital is 14%, but the actual profit is only $664,000. That seems a bit low. Maybe I should double-check my calculations.

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Okay, let's think this through step-by-step. The asset value is $7.3 million, and the cost of capital is 14%. Plugging that into the formula, I get $1,022,000 as the target profit. Subtracting the actual profit of $664,000, the residual income is $358,000. So the correct answer is C.

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Tiera

24 days ago

Oh, I see where I went wrong now. Thanks for pointing that out!

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Amina

1 months ago

Yes, I'm sure. The correct answer is definitely A) $808,000.

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Willodean

2 months ago

Are you sure about that? I'm pretty confident in my calculation.

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Micaela

2 months ago

I think you made a mistake in your calculation. The residual income should be $808,000, not $358,000.

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Vincenza

2 months ago

But the cost of capital is 14%, so I think the correct answer is C) $358,000.

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Jonelle

2 months ago

I disagree, I believe the answer is D) $2,008,000.

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Vincenza

3 months ago

I think the answer is B) $1,727,800.

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CIMA Exam CIMAPRO19-P02-1 Topic 5 Question 78 Discussion

Contribute your Thoughts:

Margarett

Alishia

Lizbeth

Twana

Rory

Deangelo

Alesia

Delsie

Ria

Elbert

Helene

Catarina

Tamie

Boris

Ula

Buck

Tiera

Amina

Willodean

Micaela

Vincenza

Jonelle

Vincenza