Gain or Loss on Disposal, Relevance of Book Value

When comparing the relative economy between alternative choices for investment on fixed assets, when tax life exceeds (or equals) economic life and so long as the asset is not disposed of at the end of the economic life, it is the book value at the end of the economic life that has been considered in the comparison. If, however, statements are seen in texts dealing with the subject that book value is irrelevant, this statement is to refer to the fact and needed recognition that the "Investment value of an incumbent asset is its net realisable value and not its book value". To emphasise the point made or implied otherwise in the introductory sentence, it is, on the other hand, important to realise that the book value is relevant (subject to the asset not being disposed of at the end of the economic life) in the choice between alternative options (of assets to be procured) to choose from through computing inclusive of income tax savings (on account of capitalisation) and disbursements (revenue expenses). The book value in these cases"s synonymous with predicted salvage value. If the net realisable value (on disposal) differs from the book value, the difference establishes the taxes to be paid on a gain on disposal or saved on a loss on disposal. Thus, the book value, though irrelevant to place an investment value on an incumbent machine (i.e. its net realisable value), is relevant as the basis of computing depreciation (capitalisation) and by its effect on annual tax disbursements and also on tax, on gain or loss on disposal.