Reference no: EM133080780
Question - On 1 January 2016 a company purchased a machine at a cost of $3,000. Its useful life is estimated to be 10 years and then it has a residual value of $1,000.
At 31 December 2018 it was estimated that the machine could be sold for $3,500. However, if the company could make a maintenance to the machine, it would be sold for $6,000. The maintenance fee was $1,500.
At the same time, if the company continued to use the machine, management estimated that it would generate net cash inflows with a present (discounted) value of $6,200.
New plant of the same type would cost $8,000 at 31 December 2018.
Required -
(1) Calculate the amount of value for this asset shown in the financial statement at the year-end 2018 (use the straight-line depreciation method).
(2) Calculate these values of this machine at the year-end 2018: net realizable value, economic value, and net replacement cost.
(3) Calculate the deprival value of this machine at year-end 2018.
(4) Explain the meaning of deprival value in this case.
(5) Suppose you try to write a research paper based on this case with a stance of advocating alternatives to the historical cost method. In this case, identify which cost/value associates to the historical cost, and which ones associate to alternatives? Would this paper be positive accounting theory or normative accounting theory?
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