Accounting rate of return also called as Average rate return. Accounting rate return calculates the amount of profit company/entity incurred from the money invested. Accounting rate of return never considers the time value of money.
The formula to calculate accounting rate of return is: Average return during period / Average investment
Average Investment = Book value at the beginning of 1st year + Book value at the end of useful life /2
Average return during period = Profit after tax/ Life of investment