Hubert Ltd has a machine that is no longer in use. The company is considering se
ID: 2416190 • Letter: H
Question
Hubert Ltd has a machine that is no longer in use. The company is considering selling or leasing it. The machine has a net book value of $35,700. It has a remaining useful life of 3 years and a residual value of $9,000 at the end of its useful life. The machine could be sold for a profit of $2,500 through a broker who charges a 10 percent commission on the sale proceeds of the machine.Alternatively, the machine could be leased to Chan Ltd over its remaining useful life for $800 per month. However, the machine must be repaired for $3,080 before it could be leased. The maintenance cost of $180 per quarter during the lease period is shared equally between Hubert Ltd and Chan Ltd.
a] prepare a differential analysis report and recommend whether the machine should be leased or sold b] explain two qualitative factors that the company should consider before selling or leasing the machine Hubert Ltd has a machine that is no longer in use. The company is considering selling or leasing it. The machine has a net book value of $35,700. It has a remaining useful life of 3 years and a residual value of $9,000 at the end of its useful life. The machine could be sold for a profit of $2,500 through a broker who charges a 10 percent commission on the sale proceeds of the machine.
Alternatively, the machine could be leased to Chan Ltd over its remaining useful life for $800 per month. However, the machine must be repaired for $3,080 before it could be leased. The maintenance cost of $180 per quarter during the lease period is shared equally between Hubert Ltd and Chan Ltd.
a] prepare a differential analysis report and recommend whether the machine should be leased or sold b] explain two qualitative factors that the company should consider before selling or leasing the machine
Alternatively, the machine could be leased to Chan Ltd over its remaining useful life for $800 per month. However, the machine must be repaired for $3,080 before it could be leased. The maintenance cost of $180 per quarter during the lease period is shared equally between Hubert Ltd and Chan Ltd.
a] prepare a differential analysis report and recommend whether the machine should be leased or sold b] explain two qualitative factors that the company should consider before selling or leasing the machine
Explanation / Answer
Particulars Amount (S) Amount (S) Net revenue from leasing: Revenue from lease 28,800 Less: Repairs 3,080 Less maintainance cost 1,080 Net revenue from leasing 24,640 Net revenue from selling: Proceeds from sale of equipment 35,700 residual value 9,000 Less: Brokerage paid at 10% 4,470 Net revenue from selling 40,230 Differential Income 15,590 Since, the net revenue from selling is more than the net revenue from leasing, it is advised to sell the equipment.