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Read the following case and then answer questions.

On 1 January 2016 a company purchased a machine at a cost of $3,000. Its useful life is estimated to be 10 years and then it has a residual value of $1,000. At 31 December 2018 it was estimated that the machine could be sold for $3,500. However, if the company could make a maintenance to the machine, it would be sold for $6,000. The maintenance fee was $1,500. At the same time, if the company continued to use the machine, management estimated that it would generate net cash inflows with a present (discounted) value of $6,200. New plant of the same type would cost $8,000 at 31 December 2018.

Required: (1)Calculate the amount of value for this asset shown in the financial statement at the year-end 2018 (use the straight-line depreciation method). (2 marks)

(2)Calculate these values of this machine at the year-end 2018: net realizable value, economic value, and net replacement cost. (6 marks)

(3)Calculate the deprival value of this machine at year-end 2018. (4 marks)

(4)Explain the meaning of deprival value in this case (3 marks)

(5)Suppose you try to write a research paper based on this case with a stance of advocating alternatives to the historical cost method. In this case, identify which cost/value associates to the historical cost, and which ones associate to alternatives (5 marks)? Would this paper be positive accounting theory or normative accounting theory? (5 marks)

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