Which one of the following items would most likely not be incorporated into the calculation of a division's investment base when using the residual income approach for performance measurement and evaluation? (CMA Adapted)
A)Fixed assets employed in division operations.
B)Land being held by the division as a site for a new plant.
C)Division inventories when division management exercises control over the amount of short-term credit used.
D)Division accounts payable when division management exercises control over the amount of short-term credit used.

Question

Quizplus · Accepted Answer

Land being held by the division as a site for a new plant is typically not included in the investment base under the residual income approach because it has not yet been employed in division operations. The investment base usually includes assets employed in division operations such as fixed assets, inventories, and accounts payable. The amount of short-term credit used is also taken into consideration when determining the investment base.

Which One of the Following Items Would Most Likely Not