Skip to content

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

Sahyadri Traders Ltd. purchased machinery on 1 April for Rs 12,00,000. At the year end, the machinery's replacement cost is Rs 14,00,000 and the net realisable value is Rs 11,00,000. The company continues to report the machinery at Rs 12,00,000 less depreciation, instead of revaluing it. Which measurement basis is the company using for the machinery?

The company is using historical cost. The machinery is carried at the Rs 12,00,000 originally paid, less depreciation, and not at replacement cost of Rs 14,00,000 or net realisable value of Rs 11,00,000. Those alternatives would be current cost and realisable value.

  1. ACurrent cost
  2. BHistorical costCorrect
  3. CRealisable value
  4. DPresent value

Explanation

Reporting an asset at the amount paid at acquisition (less depreciation) is the historical cost basis. Current cost would use Rs 14,00,000 and realisable value would use Rs 11,00,000. Present value would discount future cash flows.

Did you get it right without looking?

One question tells you little. A timed set on Framework for Preparation and Presentation of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Framework for Preparation and Presentation of Financial StatementsFree diagnostic mock

More Framework for Preparation and Presentation of Financial Statements questions