Asked by Larry Egerton on May 20, 2024

verifed

Verified

Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations?

A) It is consistent with the computation of net operating income, which includes depreciation as an operating expense.
B) It is consistent with the balance sheet presentation of plant and equipment.
C) It eliminates the age of equipment as a factor in ROI computations.
D) It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI.

Gross Cost

The total cost incurred before deducting any discounts, allowances, or rebates.

Operating Assets

Assets that are used for the day-to-day functioning of a business, excluding investment and non-operational assets.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the profit from an investment by the cost of the investment.

  • Understand the accounting methods for land and assets intended for expansion within financial analysis.
  • Ascertain the consequences of employing Return on Investment (ROI) as a criterion for performance evaluation and its influence on decisions made by management.
verifed

Verified Answer

AA
Ayisha AteekMay 25, 2024
Final Answer :
C
Explanation :
Using the gross cost of plant and equipment eliminates the age of equipment as a factor in ROI computations because it does not account for depreciation. This allows for a more consistent comparison across assets of different ages.