Which of the following statements is true of accrual accounting rate of return (AARR) method and internal rate of return (IRR) method?
A) AARR method calculates the return in absolute terms, whereas IRR method calculates the result in terms of percentage.
B) The AARR method calculates the return using operating-income numbers after considering accruals and taxes, whereas the IRR method calculates the return using after-tax cash flows and the time value of money.
C) The AARR method calculates the return considering the time value of money, whereas the IRR method calculates the return ignoring the time value of money.
D) The AARR method considers cash flows, whereas the IRR method considers operating income.

Question

Quizplus · Accepted Answer

The AARR method calculates the return in percentage terms, whereas the IRR method also calculates the result in percentage terms but uses after-tax cash flows and the time value of money. The AARR method considers accruals and taxes, whereas the IRR method does not ignore the time value of money. The AARR method also considers cash flows, as does the IRR method, but the IRR method calculates the return using after-tax cash flows.

Which of the Following Statements Is True of Accrual Accounting