Reference no: EM132926475

Question - Tootlealong Ltd is a public transport company that runs bus services. The company's management currently uses historical cost values but is considering alternative valuations of its non-current assets. The company's accountant has collected a range of values on three of its buses (non-current assets). The information is presented in the table below:

Tootlealong Lt	Bus x	Bus y	Bus z
Historical cost of asset	150000	180000	200000
Annual depreciation rate	20.00%	10.00%	20.00%
Expected sales value net of all selling costs	83800	150000	143000
Current purchase price of an asset in a similar condition	165000	218000	210000

The following additional notes on the three buses may be relevant:

Bus X is used as a stand-by vehicle for when other buses are off the road due to breakdowns or scheduled maintenance. If the use of Bus X was not available it is estimated that Tootlealong Ltd would have to spend £21,000 per annum to rent an equivalent bus from another firm. Annual maintenance costs for Bus X is £9,600. Due to its contractual obligations to provide a continuous service, the company has to have a stand-by facility for when its vehicles are off the road.

Bus Y is one of the company's regularly used vehicles. It has an expected life of 10 years and the company is able to generate £14,200 annually during its expected life from the use of this asset.

Bus Z is another of the company's frequently used vehicles. It has an expected life of 5 years and is able to generate £37,200 annually for the span of its expected life. The company's expected return on capital invested is 10%.

Required -

a) What is deprival value? How useful is an alternative valuation such as deprival value for Tootlealong Ltd's managers?

b) Calculate the deprival value for Buses X, Y and Z to the nearest £1. You should ignore the effects of taxation.