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 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 value for recognition of the plant under a business combination should be based on the independently appraised value of $31 000, which is the most reliable estimate of the fair value of the asset. The estimated net present value and the cost of the plant are not relevant for recognition purposes. The cost of a similar item of plant purchased last year is also not a reliable indicator of the fair value of the asset. Therefore, the value for recognition should be $31 000.

Johnson Limited Estimated the Net Present Value of Future Cash