Accounting rate of return, also known as the Average rate of return, or ARR is a financial ratio used in capital budgeting. The ratio does not take into account the. Accounting Rate of Return, shortly referred to as ARR, is the percentage of average accounting profit earned from an investment in comparison with the average. The accounting rate of return is used in capital budgeting to estimate whether to proceed with an investment. The calculation is the accounting. This is very informative discussion Reply. Capital budgeting techniques explanations. How should average book value be calculated? ARR is considered to be theoretically inferior than other investment appraisal methods such NPV and IRR for the following reasons:. Accounting rate of return method does not take into account the time value of money.