Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4 million. The machinery can be sold to the Romulans today for $6.2 million. Klingon’s current balance sheet shows net fixed assets of $2.8 million, current liabilities of $710,000, and net working capital of $130,000. If all the current assets were liquidated today, the company would receive $825,000 cash.
What is the book value of klingons assets today ?
What is the Market Value ?
My question is about the inital purchase of the machine do I need to do something with that and the price they can sell it for ?
The Correct Answer and Explanation is :
Solution:
1. Book Value of Klingon’s Assets Today
The book value of assets is determined by the accounting records and represents historical costs minus depreciation.
- Net Fixed Assets (Book Value) = $2.8 million
- Net Working Capital (NWC) = Current Assets – Current Liabilities
- Given NWC = $130,000
- Current Liabilities = $710,000
- So, Current Assets = NWC + Current Liabilities
= $130,000 + $710,000
= $840,000
Thus, the Book Value of Klingon’s Assets = Net Fixed Assets + Current Assets
= $2.8 million + $840,000
= $3.64 million
2. Market Value of Klingon’s Assets Today
The market value considers what the company can get if it liquidates its assets today.
- Market Value of Machinery = $6.2 million (potential selling price)
- Liquidation Value of Current Assets = $825,000 (instead of book value $840,000)
- Total Market Value = Market Value of Fixed Assets + Market Value of Current Assets
= $6.2 million + $825,000
= $7.025 million
Key Explanation:
You do not need to adjust for the initial purchase price of the machinery ($4 million) because the book value already accounts for depreciation. However, the market value of the machine is what it can be sold for today ($6.2 million), which is higher than the book value ($2.8 million). The market value reflects the real worth today, while the book value is just an accounting measure.
Thus, the book value of Klingon Widgets’ assets is $3.64 million, while the market value is $7.025 million.
Here is your generated image of a futuristic Klingon-style industrial facility with advanced cloaking machinery and an alien technology aesthetic. Let me know if you need any modifications!