Johnson Limited estimated the net present value of future cash flows from specialised Plant acquired under a business combination to be $30 000.A replacement cost for the Plant is estimated to be $33 000.The Plant has been independently appraised at a value of $31 000.A similar item of Plant cost the acquirer $29 000 last year.What is the fair value for recognition of the Plant under a business combination?
A)$29 000
B)$30 000
C)$33 000
D)$31 000.

Question

Quizplus · Accepted Answer

The fair value for recognition of the Plant under a business combination would be the independently appraised value of $31,000, which represents the most reliable estimate of the Plant's fair value. The fact that the replacement cost is higher does not necessarily reflect the current fair value, as it may have been influenced by changes in market conditions or increased costs of production. Similarly, the historical cost of a similar item of Plant is not a relevant indicator of fair value, as it does not reflect the specific characteristics and condition of the Plant being acquired. The estimated net present value of future cash flows is also not a reliable indicator of fair value, as it is based on projections and assumptions that may be subject to uncertainty and bias. Therefore, the most relevant and reliable source of information for determining the fair value of the Plant is the independent appraisal.

Johnson Limited Estimated the Net Present Value of Future Cash