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# Question: Nature’s Elixir Corporation operates three

Natureâ€™s Elixir Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2015:

Natureâ€™s Elixir estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2015, the Passion Fruit plant is 10 years old, the Kiwi Fruit plant is 3 years old, and the Mango Fruit plant is 1 year old. An index of construction costs over the 10-year period that Natureâ€™s Elixir has been operating (2005 year-end = 100) is

Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same. Required: 1. Compute the ROI ratio (operating income to total assets) of each division using historical-cost measures. Comment on the results. 2. Use the approach into compute the ROI of each division, incorporating current-cost estimates as of 2015 for depreciation expense and long-term assets. Comment on the results. 3. What advantages might arise from using current-cost asset measures as compared with historical cost measures for evaluating the performance of the managers of the three divisions?

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Passion Fruit Kiwi Fruit Mango Fruit Division Division Division Revenues \$1,000,000 \$1,400,000 \$ 2,200,000 Operating costs (excluding plant depreciation) Plant depreciation 600,000 760,000 1,200,000 140,000 \$ 260,000 \$ 400,000 200,000 240,000 \$ 440,000 \$ 500,000 1,800,000 \$2,300,000 \$ 760,000 \$ 600,000 2,640,000 \$ 3,240,000 Operating income Current assets Long-term assets-plant 280,000 Total assets \$ 680,000 2005 2012 2014 2015 100 136 160 170