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Hi
In an Asset Replacement situation, what is the difference between:1 Running cost
2 Maintenance cost (Repairs)
3 Maintenance cost (overhaul)and how we treat the above specially overhaul cost? because in a technical article on EAC, it is written that in the year of selling the asset, the overhaul cost will not be included in the PV calculation as the company would not be overhauling the asset just prior to the sell and only the scrap value will be included.
Thanks
Running cost is things like the electricity used (if it is a machine).
Repair costs are the cost of repairing the machine when something goes wrong.
Overhaul is having the machine ‘checked out’ to make sure all is OK and repairing where necessary. However in the example given it makes it clear that the overhaul is carried out at the end of each year and that is why it is not relevant in the last year (if it was carried out during the year then it would be relevant).
Despite it being mentioned in a technical article, I cannot remember the distinction between repair and overhaul being ever relevant in the exam (certainly in the last 20 years 🙂 ). However, on at least one occasion there was mention of a cost needed only at the end of years.
Have you watched my free lectures on this? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well. The articles on the ACCA website are all worth reading, but they do not cover anything like the whole syllabus and they are not all written by the examining team.
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