Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › LCM method
- This topic has 5 replies, 3 voices, and was last updated 6 years ago by John Moffat.
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- August 10, 2018 at 1:26 pm #467191
Dear sir
Can we be asked to make an asset replacement decision using LCM method. Has it ever happened in the past according to your experience?
ThankyouAugust 10, 2018 at 4:14 pm #467240I have absolutely no idea what you mean by the ‘LCM method’!!
It is not a standard term and is certainly not a term that will be ever used in the exam.
Everything needed for this exam is covered and explained in my free lectures!!
August 10, 2018 at 4:59 pm #467276LCM is the lowest cost method. There is an mcq on it in the kaplan kit. I guess then we wont have anything of substance on it
August 10, 2018 at 5:15 pm #467282It depends what topic it relates to. I am guessing that it relates to relevant costing in which case it is not a matter of learning rules, but understanding. Relevant costing is certainly important for the exam, but I explain it all in my free lectures,
August 10, 2018 at 5:22 pm #467287Sorry to answer I think she refers to EAC.
EAC – Equivalent annual cost – OR replacement cost looks at when we replace the asset after 1 year, 2 year or 3 year,
1) Discount the initial investment @ 1 because it is at year Zero
2) Net off cost against the income in relevant year and discount the cost in the other years
3) Work out the NPV in each year
4) Divide the NPV/ AF to get EAC
Do that for each year and choose the lowest costAugust 10, 2018 at 8:01 pm #467298Maybe she does, but why does she not watch the free lectures (rather than expecting me to type them out here 🙂 )?
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