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Dear sir,
I am practicing Kaplan study text question. I am confused regarding one thing and I need your assistance.
They have specified that due to some event an asset needs to impaired. For fair value less cost to sell they have included few costs. One of these costs i.e., labor cost seems not relevant as the question has specified that repair work is done by company’s own employees, then how they have included as these costs are not incremental but more like fixed as this would be incurred even if new work is not carried out. There is no detail that these are overtime or anything else.
The exact and only details they have provided are:“A potential buyer has been located, who has indicated that she would pay 80% of the carrying amount at 30 June 20X7. However, she has insisted that the machine is repaired before she buys it. The repair work will be done by Hume’s employees and will take about 120 hours of skilled labour, the associated cost with this labour is $2,160. In addition Hume will have to deliver the machine to the buyer at a cost of $2,100 and there will be a single premium insurance cost of $580 for the journey.”
Hi,
Where does it say that it need to be incremental costs? I don’t think that it does and so the fair value less costs to sell will include any cost to get the asset in a saleable condition.
Thanks
Hi,
Where does it say that it need to be incremental costs? I don’t think that it does and so the fair value less costs to sell will include any cost to get the asset in a saleable condition.
Thanks
Dear sir,
Thank you very much for your clarification. I assume that incremental cost is not relevant there. I think we should only be looking from asset perspective i.e., fair value less cost to sell (cost can be incremental, non-incremental or whatever). All the costs are relevant, right?
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