Discussion question "Assets"

Accounting
Tutor: None Selected Time limit: 1 Day

  • What factors must management consider when deciding whether to continue using an asset, repair, or replace it?
Aug 28th, 2015

Hi there! Thank you for the opportunity to help you with your question!

The main objective when making this decision is to see whether the decision is cost-effective. Each asset will have some cost associated with running it (for example, for a machine, it takes electricity to run, so the more you run, the more cost associated with it), then there will different costs to repair (buying new parts, sending it to a shop, paying for labor) and finally there will be a price to replace it. Repairing and replacing come with another factor: they will mean that production will decrease (while the machine is being replaced or repaired, no production will happen). Then one needs to calculate how much revenue could be generated from the goods produced in such time, and calculate if it is cost effective. 

Another issue is depreciation; if you are able to sell your current asset for a certain value, you will also consider that in cost-effectiveness calculations.

Please let me know if you need any clarification. Always glad to help!
Aug 28th, 2015

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