Question

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Answer 1

Answer:

The amount and character of Alpha's gain are $20,000 and a positive value.

Explanation:

Given;

For Alpha,

Cost of machinery = $50,000

Depreciation expense claimed on machinery = $30,000 (accumulated)

Netbook value of machinery = $50,000 - $30,000

                         = $20,000

Income from disposal of machinery to Beta = $40,000

Gain/(loss) on disposal of machinery = $40,000 - $20,000

                                      = $20,000

The amount and character of Alpha's gain are $20,000 and a positive value.