IMANET Exam CMA Topic 2 Question 84 Discussion

Actual exam question for IMANET's CMA exam

Question #: 84
Topic #: 2

[All CMA 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

Limited Time Offer

25%

Off

Get Premium CMA Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Delsie

5 months ago

I agree with Evangelina, the accounting rate of return does consider the time value of money.

upvoted 0 times

...

Evangelina

5 months ago

I see your point, but I think it also recognizes the time value of money.

upvoted 0 times

...

Viva

5 months ago

I disagree with that, I believe it is inconsistent with the divisional performance measure known as return on investment.

upvoted 0 times

...

Billy

5 months ago

I think the accounting rate of return focuses on income instead of cash flows.

upvoted 0 times

...

Bev

5 months ago

I think it's important to understand all aspects of the accounting rate of return, including how it relates to cash flows and the time value of money.

upvoted 0 times

...

Lawrence

5 months ago

I still think the accounting rate of return is more about income rather than cash flows. That's what I remember studying.

upvoted 0 times

...

Yuette

6 months ago

I agree with the last point, recognizing the time value of money is crucial in accounting calculations.

upvoted 0 times

...

Virgilio

6 months ago

I see where you're coming from, but I think the accounting rate of return actually recognizes the time value of money. It's an important factor to consider.

upvoted 0 times

...

Brent

6 months ago

I disagree, I believe the accounting rate of return is inconsistent with the divisional performance measure known as return on investment. It's a different concept.

upvoted 0 times

...

Annice

7 months ago

I think the accounting rate of return is similar to the internal rate of return. It focuses on income rather than cash flows.

upvoted 0 times

Stephane

6 months ago

B) Focuses on income as opposed to cash flows.

upvoted 0 times

...

Cortney

6 months ago

A) Is sonorous with the internal rate of return.

upvoted 0 times

...

Alex

7 months 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?

upvoted 0 times

...

Armando

7 months 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.

upvoted 0 times

...

Lawrence

7 months 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.

upvoted 0 times

...

Dean

7 months 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.

upvoted 0 times

...

Christiane

7 months 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.

upvoted 0 times

...

Carri

8 months 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.

upvoted 0 times

...