A revenue and expense apportionment concept for the analysis of internal returns on investment (the simple case)
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A revenue and expense apportionment concept for the analysis of internal returns on investment (the simple case)

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Published by Naval Postgraduate School in Monterey, Calif .
Written in English


  • Case studies,
  • Capital productivity,
  • Capital investments,
  • Cost accounting

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About the Edition

This paper presents a technique which uses revenue, expense, and investment data to assign returns on investment to each activity in an interactive economic system. It is a simple case of a more general model. The economic system may be a group of firms, a single firm, or a part of a firm. The technique, referred to here as revenue and expense apportionment, is particularly suited for joint cost and joint product situations such as those encountered in transportation, petrochemical production, and industrial funded activities in the Government. The principal theme of the apportionment concept is that revenues and expenses can be logically distributed among activities by using a transfer pricing mechanism so as to reveal how each segment shares in a system"s overall return on investment, even when joint products are involved. The apportionment concept assigns returns to the activities involved in creating products and services; this is in contrast to approaches that distribute revenues and expenses directly to products and services. The apportionment concept is also linked to profit maximization concepts when the model of the system meets some fundamental requirements. The managerial and economic applications of the apportionment methodology include segmental investment evaluation, limited segmental performance analyses, pricing analyses and regulation. Included in this paper is a brief discussion of existing approaches, a description of the way in which a system is to be modelled in order to apply the apportionment technique, a discussion of apportionment concepts, their interpretation, numerical examples, and some economic implications. (Author)

Edition Notes

Statement[by] James P. Hynes
ContributionsNaval Postgraduate School (U.S.)
The Physical Object
Pagination78 p. :
Number of Pages78
ID Numbers
Open LibraryOL25491944M

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The revenue recognition principle, a combination of accrual accounting and the matching principle, stipulates that revenues are recognized when realized and earned, not necessarily when received. Realizable means that goods and/or services have been received, but payment for the goods and/or services is expected later. Historically, profits were apportioned among states in the ratio of the company’s property and payroll in each state. For example, if 50 percent of a firm’s payroll was based in Colorado and 50 percent of a firm’s property was in Colorado, Colorado would be able to tax 50 percent of the firm’s : Scott Drenkard. NPV analysis is a form of intrinsic valuation and is used extensively across finance and accounting for determining the value of a business, investment security, and the internal rate of return, along with other indicators, such as the payback period, Payback Period The payback period shows how long it takes for a business to recoup an investment. Multistate Tax Commission Allocation and Apportionment Regulations Adopted Febru ; as revised through J (Applicable to Article IV of the Multistate Tax Compact and to the Uniform Division of Income for Tax Purposes Act.) The Allocation and Apportionment Regulations were adopted by the MultistateFile Size: KB.

When calculating corporate franchise or income taxes, most states use apportionment formulas that weight the sales factor more heavily than property or payroll factors. Consequently, sales play a dominant role in apportioning the income of . A. The internal rate of return is the most reliable method of analysis for any type of investment decision. B. The payback method is biased towards short-term projects. C. The modified internal rate of return is most useful when projects are mutually exclusive. D. The average accounting return is the most difficult method of analysis to compute. E. a. The revenue-expense approach defines assets and liabilities as a by- product of revenues and expenses. b. Under the revenue-expense approach, the balance sheet is burdened with by-products of income measurement rules. c. Deferred charges and deferred credits are ambiguous debits and credits that appear on the balance sheet under the revenue. In computing its book income, Qute deducts $50, more in warranty expense for book purposes than is allowed for tax purposes. Qute records no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21% and no valuation allowance is required, what is Qute's total income tax expense reported on its GAAP financial statements?

Alternatives to the ROI Formula. There are many alternatives to the very generic return on investment ratio. The most detailed measure of return is known as the Internal Rate of Return (IRR). Internal Rate of Return (IRR) The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of a project zero. In other words, it is the expected . Under Internal Revenue Code Sect these taxes are “deemed paid” by the U.S. corporations under Internal Revenue Code sections and (a). Consequently, the dividend income is “grossed-up” by the amount of taxes deemed paid on the income from which the dividend was paid.   Revenue describes income earned through the provision of a business's primary goods or services. An expense is a cost incurred in the process of producing or offering a primary business operation. IAS 18 outlines the accounting requirements for when to recognise revenue from the sale of goods, rendering of services and for interest, royalties and dividends. Revenue is measured at the fair value of the consideration received or receivable and recognised when prescribed conditions are met, which depend on the nature of the revenue. IAS 18 was reissued in .