Question

In June 2017, Bill, a single taxpayer, purchased a home for $187.000. Later that year, he added a new room at a cost of $28,400. In May 2018, he sold the house for $473,000. The home served as his primary residence for the entire Ume that he owned it. Bill's taxable gain on the sale is o $7,600 O $257.600 O $286,000

Answer 1

Answer:

Gain on sale= $257600

Explanation:

According to IAS 16 (property plant and equipment), the initial measurement of non-current asset is at cost. The cost includes the purchase price and all other directly attributable costs incurred to bring the non-current asset to it's desired location and intended use.

IAS 16 also requires that any subsequent expenditures incurred should either be expensed out if expenditures classify as Revenue expenditure and should be capitalized in the cost of the non-current asset if expenditures classify as Capital Expenditures. In Bill's case, addition of a new room in the existing home structure is an expenditure that classifies as a capital expenditure. Hence cost of the new room will be capitalized in to the cost of the home.

So the book value of Bill's home is = $187000 + $28400

BV of bills home= $215400

Sales proceeds from the sale of the home = $473000

Gain on sale= Sales proceeds - book value

Gain on sale= $473000 - $215400

Gain on sale=257600