Question
In: Accounting
John purchased new machinery for his small business factory on 1st June 2018 for $8,000. The...
John purchased new machinery for his small business factory on 1st June 2018 for $8,000. The effective life of the machinery is determined to be five years. John sold his old business machinery for $4,000 on 31 August 2019. John used this machinery 90% for business purposes. With reference to the relevant legislation and case law, discuss the tax consequences arising from the disposal of the old machinery under the prime cost method
Solutions
Expert Solution
You calculate the capital loss as follows:
In these formulas:
- 'sum of reductions' is the sum of the reductions in your deductions for the asset's decline in value that is attributable to your use of the asset, or you have it installed ready for use, for a non-taxable purpose
- 'total decline' is the decline in value of the depreciating asset since you started to hold it.
Depreciation under Prime Cost Method (Straight-line Method) till 31/05/2019= 8000/5 = 1600
for remaining 3-month year depreciation till 310/8/2019 = 1600*3/12=400
total depreciation Value = 2000
The sum of his reductions relating to his private use is $200 (10% of $2,000). calculates of capital gain / loss from CGT event K7 as follows:
- ($8000 − $4,000) × (200 ÷ 2,000)
- = $4,000 × 0.1
- = $400
Capital Loss from CGT event K7 = $400 (before applying any discount).
ekkarill92 answered 2 years agoRelated Solutions
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $930,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
135,000
N/A
N/A
Building
430,000
none
20
Machinery
230,000
12% of cost
10
Equipment
135,000
$
13,000
4
Total
$
930,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,090,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
145,000
N/A
N/A
Building
590,000
none
20
Machinery
150,000
12% of cost
8
Equipment
205,000
$
16,000
6
Total
$
1,090,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,050,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
125,000
N/A
N/A
Building
550,000
none
20
Machinery
190,000
12% of cost
8
Equipment
185,000
$
13,000
4
Total
$
1,050,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $950,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
125,000
N/A
N/A
Building
450,000
none
20
Machinery
250,000
12% of cost
10
Equipment
125,000
$
13,000
4
Total
$
950,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,050,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
125,000
N/A
N/A
Building
550,000
none
20
Machinery
190,000
12% of cost
8
Equipment
185,000
$
13,000
4
Total
$
1,050,000
On June 29, 2019, machinery included...
On March 31, 2018, the Herzog Company purchased a factory complete with machinery and equipment. The...
On March 31, 2018, the Herzog Company purchased a factory
complete with machinery and equipment. The allocation of the total
purchase price of $1,040,000 to the various types of assets along
with estimated useful lives and residual values are as follows:
Asset
Cost
Estimated Residual Value
Estimated Useful
Life in Years
Land
$
120,000
N/A
N/A
Building
540,000
none
25
Machinery
200,000
10% of cost
6
Equipment
180,000
$
15,000
5
Total
$
1,040,000
On June 29, 2019, machinery included...
John has purchased some machinery for his company and has the choice of making payments as...
John has purchased
some machinery for his company and has the choice of making
payments as follows:
Option A: $10,000
now.
Option B: $6,000 now
and $6,000 at the end of 10 years.
Option C: $ 2,500 now
and $1000 at the end of each year for 10 years.
If the interest rate
is 7%, which option would he select?
Chipper, a calendar-year corporation, purchased new machinery for $1,135,000 in February 2018. In October, it purchased...
Chipper, a calendar-year corporation, purchased new machinery
for $1,135,000 in February 2018. In October, it purchased
$2,105,000 of used machinery. What was Chipper’s maximum cost
recovery deduction for 2018?
Question 1 options:
1) $1,243,621
2) $3,240,000
3) $1,038,114
4) $577,226
A new piece of Machinery was purchased for $200,000. The machinery has an economic life of...
A new piece of Machinery was purchased for $200,000. The
machinery has an economic life of 4 years and falls under Class 8
with a CCA of 20%. The machinery is expected to have a salvage
value of $25,000 after 4 years of use. The firms tax rate is 28%,
and its overall WACC is 10%. Using the declining balance method,
calculate the PV of the CCA tax shield.
(TCO C) John operates a small business out of his home and has very little in...
(TCO C) John operates
a small business out of his home and has very little in terms of
fixed costs. Answer the next questions (Parts A and B) on the basis
of the following cost data for John’s firm operating in pure
competition. (20 points)
Output
TFC
TVC
0
$30.00
0.00
1
$30.00
70.00
2
$30.00
120.00
3
$30.00
150.00
4
$30.00
200.00
5
$30.00
270.00
6
$30.00
360.00
(Part A) Refer to the above data. If the product price...
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