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

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 78
Topic #: 5
[All CIMAPRO19-P02-1 Questions]

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.

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Suggested Answer: A, C, D

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

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Marylyn
3 months ago
Totally agree, the net income info is missing!
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Skye
3 months ago
Wait, how do we even know the net income here?
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Royal
4 months ago
Residual income is calculated by subtracting the cost of capital from net income.
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Eliz
4 months ago
I think the cost of capital is too high at 14%.
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Diane
4 months ago
Division A has $7.3 million in assets.
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Claudia
4 months ago
I think the answer might be $808,000, but I need to double-check my calculations for the net income and the capital charge.
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Ligia
4 months ago
I feel a bit confused about how to calculate the required return. Is it just the cost of capital times the assets?
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Serita
4 months ago
This question seems similar to one we practiced where we had to subtract the cost of capital from net income. I think I can apply that here.
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Brittani
5 months ago
I remember we calculated residual income in class, but I'm not sure if I got the formula right.
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Iola
5 months ago
This looks straightforward enough. I'll just plug the numbers into the residual income formula and see what I get. As long as I don't make any silly mistakes in the calculations, I should be able to arrive at the correct answer.
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Valene
5 months ago
Okay, I think I've got this. The key is to calculate the expected return on the assets, which is 14% of $7.3 million, and then subtract that from the budgeted operating profit of $2,008,000. That should give me the residual income.
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Kaitlyn
5 months ago
Hmm, I'm a bit unsure about this one. I know residual income has something to do with the difference between actual and expected profits, but I'm not totally clear on the exact formula. I'll have to review my notes before attempting this.
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Louvenia
5 months ago
This looks like a straightforward residual income calculation. I'll start by finding the expected return on the $7.3 million in assets at the 14% cost of capital, then subtract that from the budgeted operating profit to get the residual income.
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Julene
5 months ago
I've done this type of setup before, so I'm feeling confident. The two main steps are definitely creating the SnapMirror relationships and the SVM-DR relationship. The cluster peering is just a prerequisite for the SVM-DR, so that's an implied step.
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Vanesa
5 months ago
Hmm, this seems like a tricky one. I'll need to think through the different options carefully.
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Stevie
5 months ago
I think the key here is to look for the option that provides the strongest internal control. Having the payroll bank account reconciled in the payroll department doesn't seem like a strong enough control, since that department is responsible for the payroll process. Placing the payroll checks under the personal control of the payroll manager also doesn't seem like a good idea, as that could lead to potential misuse. I'm leaning towards option D - having a person other than the one who requested and authorized the payments prepare the payroll checks. That seems like the best way to maintain proper segregation of duties.
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Margarett
10 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
9 months ago
I'm going with D, it just feels right to me.
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Lizbeth
9 months ago
I'm leaning towards A, but I'm not entirely sure.
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Twana
10 months ago
I think I'll go with B, it seems like the most reasonable choice.
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Rory
10 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 months ago
Exactly! You're on the right track. Good job!
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Alesia
9 months ago
Got it, thanks for explaining. So, the answer would be A) $808,000 then.
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Delsie
10 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
10 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
10 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
9 months ago
Nice job! You nailed it with the calculation.
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Catarina
9 months ago
That's correct! The residual income for division A is $358,000.
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Tamie
10 months ago
User 2
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Boris
10 months ago
User 1
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Ula
10 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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Buck
11 months ago
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
9 months ago
Oh, I see where I went wrong now. Thanks for pointing that out!
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Amina
10 months ago
Yes, I'm sure. The correct answer is definitely A) $808,000.
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Willodean
10 months ago
Are you sure about that? I'm pretty confident in my calculation.
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Micaela
10 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
11 months ago
But the cost of capital is 14%, so I think the correct answer is C) $358,000.
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Jonelle
11 months ago
I disagree, I believe the answer is D) $2,008,000.
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Vincenza
11 months ago
I think the answer is B) $1,727,800.
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