To calculate the Accounting Rate of Return, it is necessary to determine annual profit. Annual profit is calculated on a/an:

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The Accounting Rate of Return (ARR) is a profitability ratio that calculates the percentage of return on an investment based on the average accounting profit over a given period. Therefore, it is essential to determine the annual profit on an accrual basis, which recognizes revenue and expenses when they are incurred, rather than on a cash basis or market value basis, which may not reflect the true profitability of the investment. Current cost basis is also not relevant to calculating the Accounting Rate of Return.

To Calculate the Accounting Rate of Return, It Is Necessary