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

Limited Time Offer

25%

Off

Get Premium CIMAPRO19-P02-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Rory

1 days 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.

upvoted 0 times

...

Elbert

9 days 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!

upvoted 0 times

...

Ula

11 days 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.

upvoted 0 times

...

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.

upvoted 0 times

...

Vincenza

19 days ago

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

upvoted 0 times

...

Jonelle

19 days ago

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

upvoted 0 times

...

Vincenza

23 days ago

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

upvoted 0 times

...

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

Contribute your Thoughts:

Rory

Elbert

Ula

Buck

Vincenza

Jonelle

Vincenza