Itis essential for a company to ascertain the most appropriate time todispose of a given asset so that it does not continue costing it hugeamounts of money for maintenance. Besides, some occurrences couldmake a firm do away with its property. Additionally, these reasonsalso determine when a corporation should go ahead with the procedure.
Acompany may need to do away with a given plant asset when the cost ofmaintenance is quite higher compared to the benefits that arerealized as a result of the use of the item (Weber, 2016). For thatreason, there is bound to be a great loss to the firm and themanagement may need to make a decision and take actions that will beappropriate to reduce the cost. Another rationale on the disposal ofthe asset of a company is edged on the acquisition of new machines asa result of restructuring and adoption of new technology in themanufacturing process. The old machines that were replaced could,therefore, turn out to be obsolete in the plant and theadministration might decide to offset them, instead of letting themlie around idle (Komonen, Kortelainen, & Räikkönen, 2012). Forinstance, a shrink wrapper machine that handles two cartons in aminute may be replaced with a bigger and more efficient mechanismthat toil up to eight boxes within the same time. The new apparatuscould also require negligible personnel to run it, due todigitization, thus replacing the old machine.
Someof the options that exist in accounting for these dispositions couldbe through increased profits, which may be brought about by the newlyacquired machines, meant for replacing the old ones. Accordingly, thecompany will have found some value in letting go of alleged assets.As for instance of the shrink wrapper equipment, the new one will,consequently, bring in lots of profits, thereby accounting for thedisposal of the old machine.
Komonen,K., Kortelainen, H., & Räikkönen, M. (2012). Corporate assetmanagement for industrial companies: an integrated business-drivenapproach. In Assetmanagement (pp.47-63). Springer Netherlands. Retrieved from:http://www.sciencedirect.com/science/article/pii/S2212827114008208
Weber,B. (2016). Infrastructureas an Asset Class: Investment Strategy, Sustainability, ProjectFinance and PPP.John Wiley & Sons. Retrieved from:http://as.wiley.com/WileyCDA/WileyTitle/productCd-1119226546.html