Acceptance Rule of Accounting Rate of Return or ARR

ARR procedure will accept those projects whose ARR is higher rather than that set with management or with bank rate and it will provide highest ranking to ventures along with highest ARR and vice versa.

Advantages

1. Simple to use and understand.

2. Readily calculated from accounting data therefore much easier to ascertain.

3. It is consistent along with profitability objectives as it analyses the return from complete inflows and like that it will provide a hint or a clue to the profitability of venture.

Disadvantages

1. It pays no attention to time value of money.

2. It does not seem how soon the investment should recover the cost like it is owner looking quite than creditor oriented approach.

3. It employs accounting profits instead of cash inflows some of that may not be realizable.