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

Mehta Traders Ltd. bought an item of equipment on 1 April for Rs 10,00,000 (historical cost). At 31 March, its current replacement cost is Rs 12,00,000, its realisable value is Rs 8,00,000, and the present value of its future net cash inflows from continued use is Rs 9,00,000. Under the Framework's measurement bases, which statement is correct?

Current cost is Rs 12,00,000, realisable value is Rs 8,00,000 and present value is Rs 9,00,000. Current cost is today's price to acquire the asset, realisable value is the sale proceeds, and present value is discounted future net inflows, while historical cost remains Rs 10,00,000.

  1. ACurrent cost is Rs 8,00,000 and realisable value is Rs 12,00,000
  2. BCurrent cost is Rs 12,00,000, realisable value is Rs 8,00,000 and present value is Rs 9,00,000Correct
  3. CCurrent cost is Rs 9,00,000 and present value is Rs 12,00,000
  4. DHistorical cost is Rs 12,00,000 and realisable value is Rs 9,00,000

Explanation

Current cost is the amount to acquire the same asset now, i.e. replacement cost Rs 12,00,000. Realisable (settlement) value is the amount obtainable on sale, Rs 8,00,000. Present value is discounted future net cash inflows, Rs 9,00,000. Historical cost stays at Rs 10,00,000, so other options mismatch the bases.

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