Replacement cost – NBC Institute

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

Question

According to the Conceptual Framework for General Purpose Financial Reports (GPFR), the objective of measurement in financial reporting in public sector entities is to select those measurement bases that most fairly reflect the cost of services, operational capacity, and financial capacity of the entity in a manner that is useful for accountability and decision-making purposes.

Required: Explain the under listed bases and discuss the extent to which each measurement reflects the cost of service, operational capacity, and financial capacity of an entity.

i) Historical cost

ii) Market Value

iii) Replacement cost

Answer

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Tags: Historical Cost, Market Value, Measurement Bases, Public Sector, Replacement cost
Level: Level 2

Topic: General purpose financial reporting framework
Series: NOV 2020

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

Question

The directors of Carmen Ltd, a large conglomerate, are considering the acquisition of the entire share capital of Manon Ltd, a private limited company that manufactures a range of engineering machinery. Neither company has any long-term debt capital. The directors of Carmen Ltd believe that if Manon Ltd is taken over, the business risk of Carmen Ltd will not be affected.

The accounting year of Manon Ltd ends on 31 December. Its Statement of Financial Position as at 31 December 2018 is expected to be as follows:

Manon Ltd’s summarized statement of profit or loss extract for the five years to 31 December 2018 is as follows:

The following additional information is available:

i) There have been no changes in the issued share capital of Manon Ltd during the past five years.
ii) The estimated values of Manon Ltd’s PPE and inventory and work-in-progress as at 31 December 2018 are:

	Replacement cost (GH¢)	Realizable value (GH¢)
PPE	725,000	450,000
Inventory and work-in-progress	550,000	570,000

iii) It is expected that 2% of Manon’s debtors at 31 December 2018 will be uncollectible.
iv) The cost of capital of Carmen Ltd is 9%. The directors of Manon Ltd estimate that the shareholders of Manon Ltd require a minimum return of 12% per annum from their investment in the company.
v) The current P/E ratio of Carmen Ltd is 12. Quoted companies with business activities and profitability similar to those of Manon Ltd have P/E ratios of approximately 10, although these companies tend to be much larger than that of Manon Ltd.

Required:

Estimate the value of the total equity capital of Manon Ltd as at 31 December 2018 using each of the following bases:

a) Book value (2 marks)
b) Replacement cost (4 marks)
c) Realizable value (4 marks)
d) The Gordon dividend growth model (5 marks)
e) The P/E ratio model (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Book value, Business Valuation, Gordon growth model, P/E Ratio, Realizable value, Replacement cost
Level: Level 2

Topic: Business valuations
Series: NOV 2020

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

Question

Required: Explain the under listed bases and discuss the extent to which each measurement reflects the cost of service, operational capacity, and financial capacity of an entity.

i) Historical cost

ii) Market Value

iii) Replacement cost

Answer

Find Related Questions by Tags, levels, etc.

Tags: Historical Cost, Market Value, Measurement Bases, Public Sector, Replacement cost
Level: Level 2

Topic: General purpose financial reporting framework
Series: NOV 2020

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

Question

The following additional information is available:

	Replacement cost (GH¢)	Realizable value (GH¢)
PPE	725,000	450,000
Inventory and work-in-progress	550,000	570,000

Required:

Estimate the value of the total equity capital of Manon Ltd as at 31 December 2018 using each of the following bases:

a) Book value (2 marks)
b) Replacement cost (4 marks)
c) Realizable value (4 marks)
d) The Gordon dividend growth model (5 marks)
e) The P/E ratio model (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Book value, Business Valuation, Gordon growth model, P/E Ratio, Realizable value, Replacement cost
Level: Level 2

Topic: Business valuations
Series: NOV 2020

Question Tag: Replacement cost

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PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

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PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

You're reporting an error for "PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework"

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

You're reporting an error for "FM – Nov 2020 – L2 – Q2 – Business valuations"

PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework

This question discusses various measurement bases used in public sector financial reporting and their impact on reflecting the cost of service, operational capacity, and financial capacity.

You're reporting an error for "PSAF – Nov 2020 – L2 – Q1c – General purpose financial reporting framework"

FM – Nov 2020 – L2 – Q2 – Business valuations

Estimate the value of equity capital using different valuation methods: Book value, Replacement cost, Realizable value, Gordon growth model, and P/E ratio model.

You're reporting an error for "FM – Nov 2020 – L2 – Q2 – Business valuations"

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