Question

A taxpayer is a wholesaler who uses a forklift in his business.

On 1 October 2019 he purchased a new forklift with an effective life of five years.

To acquire the forklift, he traded in his old forklift that had a market value on the date of disposal of $2,000. The cost of the old forklift was $6,000 when purchased a number of years ago and it had an adjustable value of $1,000 on the date it was sold.

What is the balancing adjustment on the disposal of the old forklift in the current year, assuming that the taxpayer is not using the Small Business Entity (SBE) method for depreciation?

Select one:

a. $1,200 deductible

b. $4,000 assessable

c. $3,000 assessable

d. $1,000 assessable

Answer 1

In order to know the balacing adjustment on the disposal of Forklift we can't take into consideration the original cost the comparision needs to be done with the adjustable value and trade-in value. The adjustable value of Forklift as on the date of trade in the books was $1000 and same was traded with the new forklift get a deduction of $2000. Hence it can be said the taxpayer has got the benefit of $1000 while providing old forklift as a trade in with the new forklift.

Since it is a gain of $1000 during the trade-in the correct answer for it will be Option (D) $1000 assessable