[jeff]

NINJA Study Notes, Flashcards, and Audio: https://www.another71.com/products-page/

Wiley Software: https://www.another71.com/wiley-cpa-software/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[rhine500]

@ Krystal83

Accounting Rate of Return = Net Income per year / Initial (in this case) Investment

–So… Net Income per year / Cost of Machine (X) = 10%

–They give you the Cash flows figure, but that is not Net Income.

–Depreciation is not included in the 3,000 cash flow figure.

–Net Income per year = 3,000 – Depreciation per year.

–They tell you it is S/L over 10 years, so Depreciation = .10X (cost of machine)

— (3,000 – .10X ) / X = .10

3,000 – .10 X = .10 X

3,000 = .20X

15,000 = X

The problem I had with this problem is that they said the Cash Flows were net of tax, yet the depreciation expense is before tax. I assume that is a typo.

FAR: 92
AUD: 99
BEC: 90
REG: 95

[momof4]

rhine500 very good. I also don't understand the net of tax. Why would you remove the taxes before you remove the depreciation. Unless you want to know the actual cash flow since depreciation is a tax deduction and not really a cash outflow.

Thanks for sharing.

BEC 84
FAR 80
AUD 85
REG 78

[momof4]

rhine500 very good. I also don't understand the net of tax. Why would you remove the taxes before you remove the depreciation. Unless you want to know the actual cash flow since depreciation is a tax deduction and not really a cash outflow.

Thanks for sharing.

BEC 84
FAR 80
AUD 85
REG 78

[rhine500]

Momof4

— You can calculate Accounting Rate of Return using Net Income from the Investment either before taxes or after taxes. The exam will say. It will not be confusing on the exam. That is why this question is confusing. They give cash flows after taxes, yet depreciation expense before taxes. They don't give a tax rate so you can calculate depreciation expense after tax. So I think the problem has an error.

–In ARR you want to know the accounting net income from the investment. Not to be confused with actual cash flows. Think of it like an Income Statement. Revenues- Expenses = Net Income. Depreciation is an expense that is deducted on the I/S and needs to be deducted from the 3,000 in the problem.

–Does this make sense?

FAR: 92
AUD: 99
BEC: 90
REG: 95

[rhine500]

Momof4

— You can calculate Accounting Rate of Return using Net Income from the Investment either before taxes or after taxes. The exam will say. It will not be confusing on the exam. That is why this question is confusing. They give cash flows after taxes, yet depreciation expense before taxes. They don't give a tax rate so you can calculate depreciation expense after tax. So I think the problem has an error.

–In ARR you want to know the accounting net income from the investment. Not to be confused with actual cash flows. Think of it like an Income Statement. Revenues- Expenses = Net Income. Depreciation is an expense that is deducted on the I/S and needs to be deducted from the 3,000 in the problem.

–Does this make sense?

FAR: 92
AUD: 99
BEC: 90
REG: 95

[wantCPA]

rhine500

Thank you 🙂

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

rhine500

Thank you 🙂

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

momof4

This question is from the Wiley Test Bank 2012.

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

momof4

This question is from the Wiley Test Bank 2012.

BEC 5.31
FAR 86
REG 84
AUD 78

[Anonymous]

General question for anybody..If you are given the CPI for a given year as 110 and then then the next year it is 121..and you are asked to calculate the inflation rate..would it just be the 121/110?

[Anonymous]

General question for anybody..If you are given the CPI for a given year as 110 and then then the next year it is 121..and you are asked to calculate the inflation rate..would it just be the 121/110?

[wantCPA]

dsteele139

121-110

---

x 100 = 10%

110

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

dsteele139

121-110

---

x 100 = 10%

110

BEC 5.31
FAR 86
REG 84
AUD 78

[momof4]

rhine500

I do appreciate and understand your explanation. I don't like the wording. They are telling us they netted taxes from the cash flow prior to removing the depreciation. That is backwards and the kind of foolery that makes so many of these quesitons frustrating when you do understand the underlying accounting concept. It is expecially frustrating when you are trying to blaze through 3 to 4 hours of questions.

Thanks so much for your help. I need to remember to slow down on the questions. Even the ones that appear very straighforward can have an unexpected twist. You know how they say you see what you expect to see and not what is actually there, that is what these questions are like sometimes.

Back to more questions. My exam is rapid approaching. I'm really happy about repeating an exam I already passed and timed out on. I won't let that happen again.

Good luck to all.

BEC 84
FAR 80
AUD 85
REG 78

[momof4]

rhine500

I do appreciate and understand your explanation. I don't like the wording. They are telling us they netted taxes from the cash flow prior to removing the depreciation. That is backwards and the kind of foolery that makes so many of these quesitons frustrating when you do understand the underlying accounting concept. It is expecially frustrating when you are trying to blaze through 3 to 4 hours of questions.

Thanks so much for your help. I need to remember to slow down on the questions. Even the ones that appear very straighforward can have an unexpected twist. You know how they say you see what you expect to see and not what is actually there, that is what these questions are like sometimes.

Back to more questions. My exam is rapid approaching. I'm really happy about repeating an exam I already passed and timed out on. I won't let that happen again.

Good luck to all.

BEC 84
FAR 80
AUD 85
REG 78

[Author]

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