Question

Sagar owns a delivery business serving the Boston metro area. In March 20PY Sagar purchased a used diesel truck for use in his business. Because he was dissatisfied with the performance of the truck in winter conditions, Sagar sold the truck in September 20CY for $57,000 to an unrelated person. The truck’s appraised fair market value was $77,000 at the time of the sale. Assume Sagar purchased the truck for $81,000, did not elect to expense any of the cost of the truck under §179, but appropriately claimed depreciation deductions in 20PY and 20CY totaling $20,500. Sagar’s adjusted basis in the truck was thus $60,500 at the time of the sale.

a. May Sagar deduct the loss he incurred on the sale? If so, how much loss may he deduct?

b. What result to Sagar if he did not use the truck in his business but rather used it as his

personal vehicle? Assume the truck’s adjusted basis was $81,000 at the time of the sale.

c. What result to Sagar in part (a) above if, instead of selling the truck in 20CY, the truck was

stolen and never recovered. Assume Sagar had no insurance on the truck.

d. What result to Sagar if several parts of the truck wear out simultaneously in September 20CY

and, because he decides it is not worth repairing the truck, Sagar simply moves it to a grass field on his property and ceases using the truck?

Answer 1

a) Yes, Sagar can deduct loss incurred in sale of truck. Since Original cost of truck in hand of Sagar was $81,000 and he has claimed depreciation of $20,500, the WDV shall be $ 60,500 and truck was sold at $ 57,000 hence he has been incurred loss of $ 3,500. Thus he may deduct amount of loss of $ 3,500.

b) As per the standard any personal expenditure shall not be allowed from business thus if sagar did not use the truck in his business nither depreciation nor the loss on sale of truck shall be allowed to him. Hence the depreciation claimed will be added back in profit. Further the loss on sale of truck will be dead loss and no treatment is required.

c)Accounting treatment for stolen goods are same as assets written off or assets sale without consideration.it is treated as disposal and no consideration has been received.The fixed asset must be de-recognized from the statement of financial position and a loss of $ 60,500 must be recognized for the carrying amount of the lost or stolen asset.

d)If several parts of the truck wear out simultaneously and repair will not work, the truck shall e useless for the business and hence it should be written off from the books pof account. The WDV as on the date when truck is useless will the amount which needs to be written off and de recognised from the statement.