IMANET Exam CMA Topic 2 Question 84 Discussion

Actual exam question for IMANET's Certified Management Accountant exam

Question #: 84
Topic #: 2

[All Certified Management Accountant Questions]

The accounting rate of return?

AIs sonorous with the internal rate of return.

BFocuses on income as opposed to cash flows.

CIs inconsistent with the divisional performance measure known as return on
investment.

DRecognizes the time value of money.

Show Suggested Answer

Suggested Answer: B

The accounting rate of return (also called the unadjusted rate of return or book value rate of return) is calculated by dividing the increase in accounting net income by the required investment. Sometimes the denominator is the average investment rather than the initial irstment This method ignores the time value of money hand focuses on income as opposed to cash flows.

by Geoffrey at Apr 08, 2024, 11:47 AM

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Alex

12 days ago

I think option D is the one that's throwing me off the most. Recognizing the time value of money? Isn't that more of a consideration for discounted cash flow analysis, not the accounting rate of return?

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Armando

14 days ago

True, that option A is pretty funny. Sounds like the kind of thing an accountant would come up with to sound smart. I'm leaning more towards option B myself, but I'm curious to hear what the rest of you think.

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Lawrence

15 days ago

Haha, 'sonorous with the internal rate of return'? What does that even mean? I think option A is just trying to confuse us with fancy-sounding language.

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Dean

16 days ago

Option C seems interesting too. The accounting rate of return is supposed to be a way to measure divisional performance, so it should be consistent with the return on investment metric, right? I'm not sure about that one.

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Christiane

18 days ago

I agree, the accounting rate of return is not something we've covered in much detail in our study group. But I think option B might be the correct answer - it does focus on income rather than cash flows, which is a key distinction.

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Carri

20 days ago

Hmm, this seems like a tricky question. The accounting rate of return is a metric that I'm not too familiar with, so I'll have to think about this one.

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