After 4 years of life in the slow lane Doug decided to give

After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city. He sold the goat milking machine for $1,000. The machine originally cost $1,200 and had $820 of accumulated depreciation at the time of sale.

?

a. What is the total gain or loss on the sale of the goat milking machine?

b. Is the gain or loss treated as capital or ordinary? Explain.

Solution

Answer

a ) the total gain or loss on the sale

= sales value - depreciation value of asset

depreciation value = 1200 - 820

= 380

sales value = 1000

gain on sales = 1000 - 380

= 620

b )

the gain on sale shall be a capital gain the asset has been used for 4 years in the business and is a capital asset the gain shall be treated as a capital gain