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?
Thankyou
Ask the Tutor ACCA FM
LCM method
7y ago#1I 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!!
LCM 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
7y ago#3It 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,
Sorry 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 cost
7y ago#5Maybe she does, but why does she not watch the free lectures (rather than expecting me to type them out here :-) )?
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