A machine is bought for €15,000, it has a useful life of five years. At the end of the second year, its fair value amounts to €7,000, the cost to sell are € 2,000. Its cash flows for the periods 3, 4, and 5 are €3,000 each. Calculate with an interest rate of 10 percent.
The recoverable amount at the end of the second year is equal to
- €5,650.35
- €7,466.56
- €6,560,34
Solution. B is correct.
We compute
recoverable amount = max{ future value is sold minus cost to sell; value in use}
= max{7,000 — 2,000 ; 3,000/1,1 + 3,000/1,1^2 + 3,000/1,1^3}
= max{5,000 ; 7,466.56}
= €7,466.56.
0 responses on "CFA Level I, Financial Reporting and Analysis, Long-Lived Assets, Recoverable Amount"