A purchased a machinery amounting to Rs.15,00,000 on 1st April, 2000. On 31st March, 2006, the similar machinery could be purchased for Rs. 25,00,000. The present discounted value of the future net cash inflows of that machinery was calculated as Rs. 13,00,000.
On the basis of above the current cost of the machinery is ____________.

Rs. 10,00,000

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Rs. 25,00,000

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Rs. 15,00,000

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Rs. 13,00,000

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Solution

The correct option is B Rs. 25,00,000
Current cost of machinery refers to the cost of machinery on today's date.

There can be difference between current cost of machinery and cost of same machinery on any previous date. This difference can be due to either inflation or deflation.
Current cost does not get affected by the present discounted value of the future net cash inflows.
If machinery cost to Rs. 1500000 on 1st April, 2000 and the same machine cost to Rs. 2500000 on 31st March, 2006, this difference in prices can be because of Inflation.
The present discounted value of the future net cash inflows plays no role in determining current cost.

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