Question

А) 11-46 An asset costing $50,000 was purchased on January 1, 2019. Calculate any depreciation recapture, ordi- nary losses, or capital gains associated with selling the equipment on December 31, 2021, for $15,000, $25,000, and $60,000. Consider two cases of depre- ciation for the problem: if 5-year MACRS is used, and if 100% bonus depreciation is used.

Answer 1

1. If 5 years MACRS IS Used

Asset purchased on 1st January 2019 an amount of $50000

Depreciation per year =50000/5 =10000

Asset value as on 31/12/2021 is =50000-10000-10000-10000

=20000

If asset was sold an amount of $15000 then loss of asset was 20000-15000=5000

If asset was sold an amount of $25000 then capital gain =$25000-20000=5000

If asset was sold an amount of $60000 then capital gain =60000-20000=40000

If company adopted 100% Depreciation

2. Company eligible for 100% if cost incurred for purchase if asset in first year.

As per books asset value will be 0 in year 1 .

If asset was sold an amount of 15000 , 25000, 60000 that will be capital gains for the company.