Managers Are Examining a Possible Replacement of a Machine Decision

question 177

Multiple Choice

Managers are examining a possible replacement of a machine decision and generate the following numbers:
Book value of old machine $1,00,000
Current disposal value of old machine $50,000
Loss on disposal of old machine $300,000
Cost of new machine $600,000
In performing an analysis and in attempt to answer the question, "should we replace the old machine", which of the following statements would be true

• A) the book value of the old machine is relevant
• B) the book value of the old machine and the current disposal value of the old machine are both relevant
• C) the cost of the new machine and the current disposal value of the old machine are relevant
• D) the book value of the old machine and the current disposal value of the old machine are the only relevant items

---

Definitions:

GAAP

Generally Accepted Accounting Principles, a set of rules and standards for financial reporting widely accepted in the accounting profession.

IFRS

Global accounting standards known as International Financial Reporting Standards, designed for the preparation of financial statements.

Other Comprehensive Income

Earnings that are not part of net income, including items that have not been realized or were not part of regular operations, such as foreign currency translation gains or losses.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues, indicating the company's actual profit.