Residual Income Concept

Residual Income Concept

Residual income may be calculated by deducting imputed interest from the accounting profit. Other name of imputed interest is notional interest. The notional interest may be calculated by multiplying Weighted Average Cost of Capital x Capital Employed.

1.    Residual Income Formula

Residual Income = Accounting Profit – Imputed Interest

2.    Imputed Interest formula

Imputed Interest = Weighted Average Cost of Capital x Capital Employed