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Metric owns an item of plant which has a carrying amount of $248,000 as at 1 April 2014. It is being depreciated at 12½% per annum on a reducing balance basis. The plant is used to manufacture a specific product which has been suffering a slow decline in sales. Metric has estimated that the plant will be retired from use on 31 March 2017.
The estimated net cash flows from the use of the plant and their present values are:
——————————–Net cash flows—- Present values
Year to 31 March 2015 120,000————— 109,200
Year to 31 March 2016 80,000—————— 66,400
Year to 31 March 2017 52,000—————— 39,000
—————————————––––––––– ––––––––
——————————–252,000—————- 214,600On 1 April 2015, Metric had an alternative offer from a rival to purchase the plant for $200,000. At what value should the plant appear in Metric’s statement of financial position as at 31 March 2015?
I do not understand why we take 214600?It is cumulative amount of 2015 2016 and 2017 but it says 31 march 2015 why not 109200?I Stuck here
Could u explain?
The figure $214,600 is the value in use of the plant
Value in use is described as “the present value of future cash flows” generated by this plant
That value in use is then compared with the net selling price and the higher of those figures is the recoverable amount
The recoverable amount is then compared with the carrying value and the lower figure is the value to be incorporated into the financial statements
Look on page 77 of the free course notes
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