Byron Limited estimated the net present value of future cash flows from specialised equipment acquired under a business combination to be $120 000. A replacement cost for the equipment is estimated to be $132 000. The equipment has been independently appraised at a value of $122 000. A similar item of equipment cost the acquirer $118 000 last year. What is the value for recognition of the equipment under a business combination?

A) $118 000.
B) $122 000.
C) $120 000.
D) $132 000.

Question

Naresh Sharma · Accepted Answer

Final Answer : B, Explanation :  The value for recognition of the equipment under a business combination should be the fair value, which is the independently appraised value of $122 000 as it is more reliable than the estimated net present value or the replacement cost. Therefore, the correct choice is B.

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