Question

please post solution with explanation.. thanks.

18. AltCoins Ltd. has just begun operating under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy. On January 1, 2019, the company acquired plant and equipment that will last two years, with a nil salvage value. AltCoins financed the plant and equipment purchase by issuing common shares.

Answer 1

a. On 1 January, 2019 AltCoins Ltd. can pay maximum for its plant and equipment is $1,559.   

for the same we have to calculate NPV of future cash flow @ 4%

  

Date	Good Cash Flow	Bad Cash Flow	Total Cash Flow	N.P.V. (as on 01.01.2019)@4%
31.12.2019	800*.6=480	600*.4=240	720	692
31.12.2020	1200*.6=720	600*.4=288	1008-70(Dividend)	867
		Total		$1559

2.

Income Statement for 2019
Particulars	Amount	Particulars	Amount
Depreciation	779.50	Revenue	800
Surplus	20.5
Total	800	Total	800

Balance Sheet (As on 31.12.2019)
Liabilities	Amount	Assets	Amount
Share Capital	1559	Plant & Equipment	779.50
Surplus	20.5	Bank/Cash Balance	800.00
Total	1579.50	Total	1579.50

3. As in case of current value method , value of assets accounted on the basis of future value, which we calculate on the basis of assumption and current market scenario, hence these predicted value may be differ from actual values, in that case depreciation and profit amount will not be correctly measured in compare of Historical Accounting method. In historical accounting method cost of plant and equipment account for in books on actual basis, which will provide actual picture of business.