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Hi Sir,
I’m confuse about average investment , why we add scrap value in initial investment as scrap value already included in initial investment,
For instance a machine with cost of 50,000 and scrap value 5000, here our actual investment is 50.000 not 55000 by adding scrap value,
so can you please to clear my confusion .In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.
Always, when we calculate the average of two numbers, we add them together and divide by two.
If the machine cost 50,000 and had zero scrap value, then the average amount invested over the period would be 50,000/2 = 25,000.
If the machine cost 50,000 and had a scrap value of 5,000, then the average amount invested must be higher and is (50,000 + 5,000) / 2 = 27,500.
I do explain this in my free lectures.
The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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