Tuesday
March 3, 2015

Homework Help: Accounting

Posted by Jamal on Monday, July 4, 2011 at 2:12am.

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).

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

b.) In general, what is the effect on ROA of changing the valuation bases from historical costs 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?

Answer this Question

First Name:
School Subject:
Answer:

Related Questions

accounting - What is included in the cost basis of a long-lived asset? Explain ...
Business - Firm A and firm B have debt-total asset ratios of 35% and 30% and ROA...
accounting - You are a hard-working analyst in the office of financial ...
finance (total asset turnover) - Total asset turnover indicates the firm's? A. ...
Accounting - Identify each statement as true or false. If false, indicate how to...
Intermediate Accounting - Burr Corporation began operations on January 1, 2007, ...
accounting - 14. Lear, Inc. has $800,000 in current assets, $350,000 of which ...
Cost Accounting - Miller Ltd has been considering the purchase of a new machine...
Accounting - Which of these assets are "quick assets"? -Cash and cash ...
Accounting - Which of these assets are "quick assets"? -Cash and cash ...

Members