Assume that Costa Plc buys a machine in 2003 for $200,000 when the general price index is 150. At the end of 2006, the index has risen to 210 and the current cost of the machine is $300,000. What is the current cost gain or loss net of inflation?

Question

Quizplus · Accepted Answer

The current cost gain without considering inflation is $300,000 - $200,000 = $100,000. To adjust for inflation, we calculate the original cost in 2006 dollars: $200,000 * (210 / 150) = $280,000. The net gain after adjusting for inflation is $300,000 - $280,000 = $20,000.

Assume That Costa Plc Buys a Machine in 2003 for $200,000