Answer:
Residual income is therefore $732,000.
Explanation:
This can be computed by following the following steps:
Step 1: Calculation of ending net book value
<u>Particulars                                           $'000    </u>
Beginning investment                         6,900 
add: Additional investment                 8,100 
Less: Depreciation - Other             <u>   (2,850)  </u>
Ending net book value                   <u>    12,150  </u>
Step 2: Calculation of Minimum required return
Minimum required return = Ending net book value * Required return rate = $12,150,000 * 12% = $1,458,000 
Step 3: Calculation of profit (loss) on disposal
First year depreciation on investment = (Investment cost  - Salvage value) / Useful life = ($6,600,000 - $660,000) / 3 = $1,980,000
Profit (loss) on disposal = Salvage value - Investment cost  - First year depreciation on investment = $660,000 - $6,600,000 - $1,980,000 = $3,960,000 loss
Step 4: Calculation of residual income	
 <u>Particulars                                                       $'000    </u>
Given operating profit of the division             6,150 
 Less: Loss on disposal                                <u>  (3,960)  </u>
 Revised operating income                             2,190 
 less: Minimum required return                   <u>   (1,458)  </u>
 Residual income                                          <u>     732    </u>
Residual income is therefore $732,000.