Oliveira Limited estimated that the net present value of future cash flows from Equipment acquired in a business combination is $15 000.The cost of replacing the Equipment is estimated to be $18 000.The Equipment has been independently appraised at a value of $14 000.A similar item of Equipment cost the acquirer $19 000 last year.The fair value at which the Equipment will be recognised when recording the business combination is:
A)$14 000
B)$15 000
C)$18 000
D)$19 000.

Question

Quizplus · Accepted Answer

The fair value of the Equipment will be recognized at the appraised value of $14 000, which is lower than the cost of replacing it or the cost of a similar item of Equipment acquired by the acquirer. The net present value of future cash flows also supports a fair value of $15 000, which is quite close to the appraised value. Therefore, the best choice is A) $14 000.

Oliveira Limited Estimated That the Net Present Value of Future