Accounting · Performance Appraisal Methods
A company has two identical divisions operating the same machinery. Division A was set up four years ago and Division B was set up one year ago. Non-current assets are measured at net book value. Which statement is correct regarding performance evaluation using Return on Investment (ROI) and Residual Income (RI)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both RI and ROI will favour the newer division
- 2RI will favour the newer division and ROI will favour the older division
- 3ROI will favour the older division, but RI will treat each fairly
- 4Both ROI and RI will favour the older division✓
Correct answer
Both ROI and RI will favour the older division
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