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MikeLittle.
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josy87
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Although most items in financial statements are shown at their historical cost, increasingly the IASB is requiring or allowing current cost to be used in many areas of financial reporting.
Drexler acquired an item of plant on 1 October 2012 at a cost of $500,000. It has an expected life of five years
(straight-line depreciation) and an estimated residual value of 10% of its historical cost or current cost as appropriate.As at 30 September 2014, the manufacturer of the plant still makes the same item of plant and its current price is
$600,000.
What is the correct carrying amount to be shown in the statement of financial position of Drexler as at
30 September 2014 under historical cost and current cost?
historical cost current cost
$ $
A 320,000 600,000
B 320,000 384,000
C 300,000 600,000
D 300,000 384,000Sir I dont understand B as a correct answer. I choose A as the current price at that date is 600 000 and the financial statement is the same day.
MikeLittle
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But, when using current cost as a measure, you compare the asset that you have with a similar asset – same age, same condition, same location
So the cost of a similar two year old asset would be 600,000 – 2 years’ depreciation @ 108,000 per year = 384,000
Ok?
josy87
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ok Sir. I just thought we should consider the year as well
MikeLittle
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It’s as I have written. We need to consider age, quality, location so we are comparing like with like
josy87
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