Solution manual to accompany: Contemporary Issues in Accounting

Exercise 3

The following information is provided about a particular machine used by a company in its operations. The machine is technological in nature and new models are coming out all the time. The machine originally cost £80,000 and it would cost £140,000 now to replace this machine. The company expects to receive £112,000 (discounted to present value) in cash inflows from using this machine over the next 5 years. If we were to sell it now, the machine would bring in £60,000. Consider the decision usefulness of accounting information produced when using each of the above figures as a measure of the value of the machine. In particular, consider usefulness from the perspective of the following stakeholders:

(a) Shareholders

(b) Creditors

(c) Employees