investment centre in responsibility accounting

1. INVESTMENT CENTER
PRESENTED TO: PRESENTED BY:
DR. RUCHI MA’AM JASHANDEEP SINGH
B.COM(HONS), 17193143

2. INVESTMENT CENTRE
 An investment center is a subunit
that is responsible for generating
revenue, controlling costs, and
investing in assets.
 An investment center is charged
with earning income consistent
with the amount of assets
invested in the segment.
 Most divisions of a company can
be treated as either profit centers
or investment centers.

4. METHODS TO EVALUATE THE
PERFORMANCE OF INVESTMENT
CENTRE1. ROI has a distinct advantage over income as a
measure of performance since it considers both
income (the numerator) and investment (the
denominator).
ROI = Net profit
Invested capital
ROI = Net profit
Sales
x
Sales
Invested capital
Profit Margin Investment Turnover
The breakdown of the formula shows that managers can increase
return by more profit and/or generating more sales for each
investment dollar.
*100
*100

5.  Residual income is useful in overcoming some of the disadvantages of the rate of
return on investment.
 Residual income is the excess of income from operations over a minimum
acceptable income from operations.
 The minimum acceptable income from operations is computed by multiplying the
company minimum rate of return by the invested assets.
 The major advantage of residual income as a performance measure is that it
considers both the minimum acceptable rate of return, invested assets, and the
income from operations for each division.
EVA=(Net operating profit after tax)-(Cost of capital* capital invested)
Or, EVA= Capital employed(Return on investment-cost of capital)
Or, EVA= Capital employed(ROI- Cost of capital)
Economic Value Added/Residual
Income Approach