Present Value
 Present value is the present discounted value of the future net cash inflows that the asset is expected to generate in the normal course of business
 Liabilities are carried at the present discounted value of future net cash outflows expected to settle the liabilities in the normal course of business
Example: Shahid purchased a machine on 01042002, and it is supposed to generate cash at â‚¹ 50,000 p.a. for the next 10 years at the rate of 10% p.a. The present value of future cash flows will be calculated as follows:
Solution:
= â‚¹ 45,455
Similarly,
Where
PV = Present value
n = Number of years
I = Rate of interest
A = Amount
Time of receipt 
Money value (â‚¹) 
Present value (â‚¹) 
31032004 
50,000 
41,322 
31032005 
50,000 
37,565 
31032006 
50,000 
34,151 
31032007 
50,000 
31,046 
31032008 
50,000 
28,224 
31032009 
50,000 
25,658 
31032010 
50,000 
23,325 
31032011 
50,000 
21,205 
31032012 
50,000 
19,277 
Total 

3,07,228 
Total of all these present values is â‚¹ 3,07,228.
The machine purchased by Mr. X has to be valued at its present value of â‚¹ 3,07,228.
Illustration 1
A Ltd. purchased a machine for â‚¹ 50,000 on 01042010 A similar machine could be purchased for â‚¹ 60,000.
 The same machine could be disposed off for â‚¹ 40,000.
 The present discounted value of the future net cash inflows that the machinery was expected to generate in the normal course of business is calculated at â‚¹ 75,000.
It signifies the following
 Historical cost is â‚¹ 50,000
 Current cost is â‚¹ 60,000
 Realizable value is â‚¹ 40,000
 Present value is â‚¹ 75,000