Problem
AltCoins Ltd. has just begun operating under ideal conditions of uncertainty. Its cash flows will depend on the state of the economy. On January 1, 2019, the company acquired a plant and equipment that will last two years, with a nil salvage value. AltCoins financed the plant and equipment purchase by issuing common shares.
In 2019, net cash flows will be $800 if the state of the economy is good and $600 if it is poor. In 2020, cash flows will rise to $1,200 if the economy is good and remain at $600 if it is bad. Cash flows are received at year-end.
1) How much did AltCoins, Ltd. pay for its plant and equipment on January 1, 2019?
2) In 2019, the economy is good. Prepare the current value-based balance sheet at the end of 2019 and an income statement for 2019.
3) In North America, most property, plant, and equipment are usually accrued under historical cost accounting, rather than at the current value as above. Suggest why.