Will the managers incentives to replace the metal press

Assignment Help Accounting Basics

Reference no: EM13599470

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).

Required:

a.Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.

b.In general, what is the effect of ROA of changing valuation bases from historical cost to current values?

c.The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager's incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level-adjusted historical cost valuation?

Reference no: EM13599470

Questions Cloud

Actual production costs for the production of 1000 stuffed : woods enterprises prepared the following standard costs for production of one stuffed bear direct materials 1.5 pounds

The company on 123107 pays the fourth interest payment on : please tell me the journal entries for the following1 on 1107 hawkeye issues 500000 of ten 10 year 9 coupon bonds

There are two different restaurant chains that you have : there are two different restaurant chains that you have identified as potential investment opportunities. you are

During its fiscal year a pension trust fund buys 1000 : during its fiscal year a pension trust fund buys 1000 shares of stock for which it pays 33000. at year end the stock

Will the managers incentives to replace the metal press : your firm uses return on assets roa to evaluate investment centers and is considering changing the valuation basis of

Assume a pension plans actuarially-computed liabilities : assume a pension plans actuarially-computed liabilities are greater than the actuarial value of the assets. how does

Naftel company sells lamps and other lighting fixtures the : naftel company sells lamps and other lighting fixtures. the purchasing department manager prepared the following

The beneficiaries of private purpose trust funds are : what is the distinction between private purpose trust funds and permanent funds?a. private purpose trust funds account

Poole corporation has collected the following information : poole corporation has collected the following information after its first year of sales. net sales were 1706800 on

User Account

All Pages