Exam IIA-CIA-Part3 Topic 2 Question 686 Discussion

ROI equals income divided by invested capital. The denominator may be defined ink various ways, e.g., total assets available, assets employed, working capital plus other assets, and equity. If equity total assets -total liabilities) is chosen, a portion of longterm liabilities must be allocated to the investment center to determine the manager's resource base. One problem with this definition of the resource base is that, although it has the advantage of emphasizing return to owners, it reflects decisions at different levels of the entity: short-term liabilities incurred by the responsibility center operating decisions) and long-term liabilities controlled at the corporate level long-term financing decisions).