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If that is the case, the question gt disposal value, how should we treat it in accounting rate of return? which part will be affected?
Thanks sirIf what is the case?
The disposal value is relevant in calculating the annual depreciation charge (which affects the profit).
In addition, the average investment is (initial cost + disposal value) / 2
This is revision from Paper MA (was F2) and is all explained in my free lectures 🙂
Is it same like scrap value, but disposal value is + to initial investment while scrap value is minus from initial investment?
Average annual profit=
Total est CF- total depreciation for the investment (initial investment-scrap value+disposal value)=total profit
From total profit/investment life span= average annual profitAverage investment
=(Initial Investment-Scrap Value +Disposal Value)/2Is that correct?
No it isn’t correct.
Scrap value and disposal value are the same thing!
Total depreciation = (initial investment – scrap value) / life of investment
Average investment = (initial investment + scrap value) / 2
Have you watched the free lectures?
I think scrap value is the net realisable value, while disposal value is the cost to remove the asset.
It should not be the same thing right?????Thanksss
The two are the same thing. Disposal value means sale value (or scrap value).
You are thinking of disposal cost – that would be the cost of removing the asset.
Orhh sorry I misunderstand it. I have watched the free lecture video
As per u mention, average investment= initial investment + scrap value/2
However, I am wondering the example 8 sir u discussed in lecture video why from 80,000 (asset original amount) drop to 10,000 (scrap value). The difference not supposed like 80,000 drop to 10,000 which means difference is 70,000 and then divided by 2? why it will use 80,000+10,000/2 to find the average investment??
I a bit confused with this part.If there is disposal cost, where will it be?
If the value is 80,000 at the start and falls over the period to 10,000 at the end, then the average value is the average of the two in the normal way i.e. (80,000 + 10,000) / 2 = 45,000.
A disposal cost is unlikely in the exam but is treated just as negative scrap proceeds.
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