CMA Final · Strategic Performance Management and Business Valuation · Valuation of Assets and Liabilities
Sundaram Textiles has a machine whose current cost of an identical new machine is Rs 50,00,000. The machine has a total useful life of 10 years and is 4 years old. Using straight-line physical depreciation and with no other obsolescence, what is its depreciated replacement cost?
The depreciated replacement cost is Rs 30,00,000. The machine has consumed 4 of 10 years, so 40% of the new cost of Rs 50,00,000, i.e. Rs 20,00,000, is deducted, leaving 60% of the replacement cost as the current value.
- ARs 20,00,000
- BRs 30,00,000Correct
- CRs 40,00,000
- DRs 35,00,000
Explanation
Physical depreciation = 4/10 x 50,00,000 = Rs 20,00,000. Depreciated replacement cost = 50,00,000 - 20,00,000 = Rs 30,00,000. Rs 20,00,000 is wrong because it is the depreciation deducted, not the remaining value.
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