GK
ACCOUNTING
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Question
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Accounting rate of return is the ratio of average value of
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profit after tax to book value of the investment
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profit after tax to salvage value of the investment
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profit after tax to present value of the investment
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profit before tax to present value of the investment
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Explanation:
Detailed explanation-1: -Accounting rate of return is the ratio of average value of profit after tax to book value of the investment. Accounting rate of return, also known as ARR, is a financial ratio used in capital budgeting. The ratio does not consider the concept of time value of money.
Detailed explanation-2: -The average accounting return (AAR) is the average project earnings after taxes and depreciation, divided by the average book value of the investment during its life. Approach to making capital budgeting decisions involves the average accounting return (AAR). There are many different definitions of the AAR.
Detailed explanation-3: -ARR = (Average annual profit / Initial investment) x 100.
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