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25 May, 06:20

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?

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  1. 25 May, 06:47
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    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.
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