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I’ve been doing an exercise in Kaplan Revision Kit and there is a question I dont understand.
In the question, what does “The machine has a potential disposal value of $10,500 (before $200 disposal costs) ” means?
And why does the relevant cost of this machine is the sum of relocated & refitted cost (1300$) and net disposal (10300)?Thank you.
It means that they can sell the machine for 10,500 but that selling it will cost them 200.
S0 the net receipt from the sale will be 10,300.I cannot explain the 1300 because you have not typed out the question!
The question is “The machine has a current book value of $12,000 and a potential disposal value of $10,500 (before $200 disposal costs) and hence has been under depreciated by $1,500 over its life to date. If the machine is to be fit for purpose on the new project it will have to be relocated at a cost of $500 and refitted at a further cost of $800”.
I understand that the relocated and refitted cost is part of the machine’s relevant cost. But I why there is also the net disposal (10300$) ?
I have explained the 10,300 in my previous reply!
It is a relevant cost because if they use it on the new project that will not be able to sell it and there will therefore be the opportunity cost of the 10,300 that they will not be receiving.
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