ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework
Karo Co buys a machine for $500,000 and incurs $20,000 of costs to bring it into use. Under the Conceptual Framework, a current value measure is being considered. The machine would currently cost $540,000 to buy, with $15,000 of transaction costs to acquire an equivalent used machine of the same age and condition costing $430,000. A market participant would pay $410,000 for Karo's machine, and disposal costs would be $10,000. What is the current cost of the machine under the Conceptual Framework?
The current cost is $445,000. It is the cost of an equivalent asset of the same age and condition, $430,000, plus the $15,000 of transaction costs that would be incurred to acquire it. Fair value, disposal costs and the original cost of the machine are not relevant.
- A$410,000
- B$420,000
- C$430,000
- D$445,000Correct
Explanation
Current cost is the cost of an equivalent asset at the measurement date, being the consideration that would be paid plus transaction costs that would be incurred at that date. The equivalent used asset costs $430,000 plus $15,000 transaction costs, giving $445,000. $410,000 is the fair value, and $420,000 deducts disposal costs from fair value, which is the wrong basis. $430,000 omits transaction costs.
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