Question

Q1:

Saud LLC Purchased a delivery van for OMR 40000 on 1st January 2016. Depreciation rate is 15% per year on Reducing Balance Method. As at 1st January 2020 the van could be sold to another company for OMR 30000 but there would be repair costs of OMR 2000. To replace the van with a new version would cost OMR 36000. The cash flows from the existing van are estimated to be as follows:

Year 1	20000	Year 4	16000
Year 2	26000	Year 5	12000
Year 3	25000	Year 6	24000

The optional discount rates for this company are as follows:

Option 1	Option 2	Option 3	Option 4	Option 5	Option 6
7%	9%	12%	16%	17%	10%

Note: Selection is from your own choice

Calculate the value of this van under the following bases:

a) Historical cost

b) Net realisable value

c) Current cost

d) Present value

Answer 1

Answer - 1

Value as on 1st Jan,2020 on Historical Basis is OMR 20880 calculated as hereunder -

Ans-2

Value as on 1st Jan,2020 on Net Realisable Value basis is -

Sale Value = OMR 30000

Less:Repair Cost = OMR 2000

NRV = OMR 28000

Ans-3

Valuation uner Current cost method will be OMR 36000.

Ans-4

Using a 10% discount rate the PV of asset will be OMR 90379 as calculated hereunder -

assumed Cash flow at year end

PV = C/(1+10%)^n