Question

ABC Company has a truck with cost of $60,000 and accumulated depreciation of $38,000. Very similar trucks regularly sell at a local vehicle auction for $20,000. However, when ABC projects the future cash flows likely to be generated by the truck, those projected future cash flows have a net present value of only $16,000.

What amount should ABC include in total assets for the truck?

		$22,000
		$0
		$38,000
		$60,000
		$20,000
		$16,000
		None of the other answer choices is correct.

Answer 1

Answer: $22,000

Carrying value should be included in total asset. This is the cost minus accumulated depreciation (AD).

Carrying value = Cost – AD

                        = 60,000 – 38,000

                        = 22,000

Fair market value, 20,000, is not relevant here, since this value fluctuates often.

Present value ($16,000) is also not relevant, since it depends on discount factor and choosing the appropriate factor is almost impossible.