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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Meenakshi Traders purchased machinery for Rs 12,00,000 on 1 April 2024. On 31 March 2026 a similar machine can be bought for Rs 14,00,000, and the present value of its expected net cash inflows is Rs 9,00,000. Accumulated depreciation up to that date is Rs 2,40,000. Which of the following measurement bases is being used when the machine is shown at Rs 9,60,000?

The machine is carried at historical cost. The original cost of Rs 12,00,000 less accumulated depreciation of Rs 2,40,000 gives Rs 9,60,000. Current cost would use the Rs 14,00,000 replacement price and present value would use Rs 9,00,000, so neither matches the figure shown.

  1. ACurrent cost
  2. BPresent value
  3. CHistorical costCorrect
  4. DRealisable value

Explanation

Historical cost less accumulated depreciation is 12,00,000 - 2,40,000 = Rs 9,60,000. Current cost would be Rs 14,00,000 (or its depreciated equivalent), and present value would be Rs 9,00,000. The figure 9,60,000 arises only from the original cost adjusted for depreciation.

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