Question

23 On April 1^st Moon Ltd. purchased and placed into service a new warehouse and the land it resides on in the outskirts of Miami. The cost of the purchase was $1,870,000 ($1,550,000 is allocated to the building and the remaining to the land). What is the depreciation amount that should be charged by the company in the first year (round-up to the nearest $)? Justify your answer.

24 Airfresh Ltd. sells specialised welding machines for $652,000. It bought the equipment 1 years ago for $565,000 and it has claimed a total of $80,024 in depreciation deductions against the asset. What is the company’s adjusted basis in this case? Justify your answer.

25 Liberty Ltd sold an asset to Rex Ltd. Rex Ltd. pays $765,000 cash and gives a special robot worth $424,000. Liberty Ltd pays $9,800 selling expenses. What is the amount realised on the sale by Liberty Ltd? Justify your answer.

26 Felix Ltd sold an asset to Beta Ltd. Beta Ltd. pays $2,250,000 cash, a parcel of land worth $700,000, offers marketable securities of $630,000, and takes over short term debts from Felix Ltd worth $144,000. Felix Ltd pays a commission of $52,100 on the transaction. What is the amount realised on the sale by Ellie Ltd? Justify your answer.

27 Clive owns 165 shares of Skyline Inc. He sells the stocks on 15^th April for $18 per share. He received the stocks as a gift from his mother on February 1^st. The latter bought the stocks originally for $10 per share. What is the amount of Clive’s recognised gain or loss on the stock? Justify your answer.

Answer 1

23. Calulation of amount of depreciation:

Note : Depriciation will be allowed only on Building not on land. Because Land is not a depreciable item.

Total Cost of Land and Building : $1870000

Less:- Cost of Land :- $320000

Total cost of Building $1550000   

Assuming Life of Building 10 Year depriciation as per Stratight Line Method

Cost of Building $1550000/10 = $155000 per year

Amount of Depreciation = $155000 per year

24. Calculation of Adjusted Basic :

Selling amount rececived from welding machine : $652000

Less :- Equipment purchased : $565000

Less :- Depriciation claimed : $80024 484976

Profit earned of transtion : 167024

25. Calculation of amount received by Liberty Ltd. :

Amount received in monetary term : $765000

Received assest against Sale will be recorded at :- $424000

Fair market Value :

Total Consideration received : $1189000

Less : Selling Expense : $9800

Net amount received from Sales : $1179200

26. Calculation of amount received by Felix Ltd

Cash received from sale of Land $2250000

Received parcel of Land $700000

Marketable security $630000

loans and advance given by felix ltd $144000

Total amount received against sales $3724000

Less :- amount of commission $52100

Net amount realised from Sales $3671900

27 In the case of gift shares cost of the shares of previous owner will be the cost of new owner

so cost of the shares in the hands of Clive owns will be $10 per shares

Sales Value of shares : $2970

(165*18)

Less cost of the shares: $1650

(165*10)

Net gain on sale of shares : $1320