Reference no: EM132996001

Capital Maintenance:

At the beginning of 20X5, its first year of business, Marsals Ltd. invested $64,000 in inventory and $300,000 in equipment. Total sales were $160,000. of the initial purchases $25,000 remained in inventory at the end of the period. Marsals depreciated the equipment by 20% straight-line, taking a full year's depreciation in 20X5

The replacement cost of the inventory, both that sold and that remaining in year-end inventory, had decreased by 10% by the end of the year. The replacement cost of equipment, however, had increased by 3% over the year.

Required:

Problem 1: Determine the net income(using only the costs indicated above), under each of the following assumptions:

1.1. Nomial dollar capital maintenace
1.2. Physical Capital maintenace