The Residual Income Debate

Mepham, Michael J.

doi:10.1111/j.1468-5957.1980.tb00736.x

Cited by 7 publications

(4 citation statements)

References 12 publications

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“…As such costs could be very difficult to compute, economic profit has limited practical applications; but it does highhght certain important issues. The supporters of residual income claim that an interest charge should be included in the performance measure in order to encourage the divisional management to use their capital assets efficiently, Solomons (1965), Tomkins (1975) and Mepham (1980). The economic profit measure suggests that unless certain simplifying conditions are satisfied the interest charge must be applied to the opportunity cost of capital assets.…”

Section: Profit Measurement In Divisionalised Companiesmentioning

confidence: 99%

“…There has been much discussion of the vahdity of including an interest charge in the profit calculation. Following a proposal advanced in the United States (US) by Solomons (1965), it has been argued by Tomkins (1973) and (1975), Mepham (1980) and others, that divisional profit measurement should include interest on capital employed (or at least, on some part thereof) to ensure that divisional managers are encouraged to operate with the optimal capital resources. However, h e y (1969a), (1969b) and (1975) has argued, with some support from Bromwich (1973), that it is theoretically erroneous to deduct interest in the appraisal of operating decisions.…”

Section: Introductionmentioning

confidence: 99%

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Performance Measurement and Formal Capital Expenditure Controls in Divisionalised Companies

Scapens¹,

Sale²

1981

Business Fin & Account

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Section: Profit Measurement In Divisionalised Companiesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Performance Measurement and Formal Capital Expenditure Controls in Divisionalised Companies

Scapens¹,

Sale²

1981

Business Fin & Account

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“…Whilst this a relatively new concept to the world of accounting, it is, obviously, a familiar idea to the micro-economist. In fact, Mepham (1980) claims that the charging of notional interest on capital funds invested dates from the publication of Adam Smith's Wealth of Nations. Neither the accountant nor the economist would be in disagreement with the idea of charging the organisation, or a division, with the fixed interest costs of specific loan finance.…”

Section: The Theoretical Framework Of Eva®mentioning

confidence: 99%

EVA® and other Arthurian myths: A comment on Zafiris & Bayldon (2000).

2000

Journal of Applied Accounting Research

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The basis of this paper is a critical review of an article published in this journal, by Zafiris and Bayldon (JAAR, 5, 2, 2000), on Economic Value Added and Market Value Added. This review provides a detailed critique of the literature relating to EVA® and the underlying philosophy of the use of EVA® as a performance metric. Following this, there is a comment on the analysis provided by Zafiris and Bayldon and a review of the empirical evidence presented in support of their analysis. The paper demonstrates that the amendments to the EVA® model proposed by Zafiris and Bayldon are not original and are unlikely to result in a significant improvement to the usefulness of the original model.

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“…Economic profit gives farmers and policy makers a better understanding of whether a farm can afford different levels of annual land tax -a farm with a high accounting profit may not necessarily have a high economic profit. The RIM in this paper is adapted from Mepham (1980) (Olsen, 2004: 209). If this opportunity cost component is ignored, annual farm profit will be overstated and this figure should then be interpreted as the "estimated return to management and profit" (Kay & Edwards, 1999: 168).…”

Section: Empirical Analysis Using the Rim Frameworkmentioning

confidence: 99%

The economic impact of a rural land tax on selected commercial farms in Kwazulu-Natal, South Africa

Darroch

Lee²,

Ortmann³

2012

SAJEMS

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This study investigates the economic impact of a land tax implemented under the Local Government Municipal Property Rates Act No. 6 of 2004 on commercial farms using five case studies with fiveyear data sets in the Mtonjaneni and Umgeni municipal districts of KwaZulu-Natal. The case of farms' ability to pay annual rates between 0.25 per cent and 1 per cent of the value of improved land using real annual economic profit with and without rebates of up to 70 per cent proposed by the Department: Provincial and Local Government ranged from zero to five out of five years, with a mean of two out of five years. A 2 per cent land tax rate with such rebates could also be financed only in two out of five years on average. These results suggest that proposed annual land tax rates of 1.5 per cent (Mtonjaneni) or 1 per cent (Umgeni) on these specific farms would markedly reduce the incentive to invest in farm improvements. JEL H22, 71 IntroductionSince the early 1990s, the South African (SA) Government has considered the implementation of a rural land tax, as reflected by 15 drafts of the proposed Local Government Property Rates Bill. This Bill has now been enacted into legislation as the Local Government Municipal Property Rates Act No. 6 of 2004 (hereafter referred to as "the LGMPRA") (Department: Provincial and Local Government (DPLG), 2004a). President Mbeki signed the LGMPRA into effect on 2 July 2005 (SA Government Gazette No. 27720, 2005). Prior to that date, farm land in South Africa was not subject to property taxes levied by municipalities. The new LGMPRA however, incorporates all previously unrated land into municipal boundaries, so that farm land that was not rated under the old municipal ordinances is now liable to pay a land tax (DPLG, 2004a).The power for SA municipalities to levy a tax on land stems from Section 229 of the SA Constitution, which guarantees "rates on property" as "an autonomous source of revenue for municipalities" (Franzsen, 2000: 1). In terms of Section 229 of the SA Constitution, a municipality may impose rates on property and surcharges on fees for services provided by or on behalf of the municipality. However, Section 229(2)(a) of the SA Constitution states that a municipality may not exercise its power to levy rates on property in a way that would materially and unreasonably prejudice (a) national economic policies; (b) economic activities across its boundaries; or (c) the national mobility of goods, services, capital or labour (DPLG 2004a: 28).In South Africa, the land tax is intended to "provide local government with access to a sufficient and buoyant source of revenue to fulfill its developmental responsibilities" (DPLG, 2004b: 5). There is a relatively limited amount of published literature that analyses the potential economic impact of a land tax on commercial farms in South Africa. Nieuwoudt (1990; noted that a land tax is likely to reduce land rents, and hence cause lower farm land values and discourage investment on farms. Franzsen (1995;2000) concluded that the implement...

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The Residual Income Debate

Cited by 7 publications

References 12 publications

Performance Measurement and Formal Capital Expenditure Controls in Divisionalised Companies

Performance Measurement and Formal Capital Expenditure Controls in Divisionalised Companies

EVA® and other Arthurian myths: A comment on Zafiris & Bayldon (2000).

The economic impact of a rural land tax on selected commercial farms in Kwazulu-Natal, South Africa

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