Question

Describe the process by which you would go about measuring the value of the following:

1. An inventory of men’s shirts acquired 15 months ago by a department store

2. A 10-year old machine tool used by an automobile manufacturing company to fabricate parts

3. A three-year old automobile used by one of the company’s salespersons

4. A company’s obligation to pay wages during vacation leaves earned by its employees

5. The repay a $12,000 loan due in five years with interest payable annually at the rate of 8 percent

6. A used truck recently purchased

7. The exchange of a parcel of land owned by the company for a 15-year lease in a newly constructed facility

8. The acceptance of a five-year interest-bearing note from a customer in settlement for the customer’s past-due account

9. The signing of a five-year employment agreement with the company’s chief scientist

10. The acceptance of an order for 120 units of product X requiring delivery at the rate of 10 units per month over the next year.

11. The filing by the company of a lawsuit seeking $200,000 in damages from a supplier that delivered inferior quality material

12. The return to the company of defective goods previously supplied to the company’s best customer

13. The bankruptcy of the company’s second largest customer.

Answer 1

1. These shirts will be valued at their net relisable value in market at current date. As the stock may be outdated and out of fashion.

2. Since machine is in use since last 10 years, it will be valued at the written down value i.e. the value after charging depreciation.

3. Again the automobile will be valued at the WDV as it is also being used since last 3 years.

4. In case if the employee hd not been gone for vacation leaves, he would have been paid at the the fixed compensation p.m. as decided in the appointment letter. So, here if he goes for vacation leaves, company will have to pay him wages at the proportionate fixed compensation amount for the days he take leaves.

5. Repyment of loan will be, Principal amount taken as loan i.e. $12,000 and interest thereupon @8% p.a. for 5 years.

6. Valuation of a used truck recently purchased will the rate at which it has been purchased. The amount which have actually been paid for the truck.

7. The land exchanged will be valued at the lease amount paid for 15 years as per the agreement.

8. All the dues from customers will be determined, as we are accepting the interest bearing note against the dues.

9. It will be valued at the compensation decided in the agreement wth company's scientist and also if there is any royalty being paid, if any to him for his services then it also need to be considered.

10. Order will be valued at the rates decided in the agreement with the customer. Since 10 units will be sold p.m. it will get multiplied with the rate decided

11. Valuation will be done at the damages and opportunity cost incurred due to the inferior quality material.

12. Defective goods returned by the customer will be valued at the price at which it was sold to him.

13. If customer gets bankrupted then, valution will be done at the amount due from him after reducing the possible recoveries from selling of his collateral assets.