You, an engineer, and an attorney friend, Rob, started a small business 3 years ago to do energy audits for small businesses. A piece of equipment that costs $25,000 then has become prematurely obsolete and needs to be replaced with a solid state version that has a purchase price of $20,000 and the current equipment has a nil salvage value. Your company accountant shows the book value of the equipment to be $10,000.

(a) If you buy the solid state equipment, how should the difference between the cost of the new equipment and the value of the old equipment be considered?

(b) Your partner thinks of this difference as an added cost to the new equipment, effectively making its purchase price $30,000. Is she correct?