Here, in the case Fast Ed is in the car selling business that deals with the new and second hand cars. Thus, his assets can be called as trading stock. It is because Sec 70-10(1) of ITAA (Income Tax Assessment Act) 1997 states that anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of business consists of trading stock.
a) Since Fast Ed has been left with cars in stock at the end of the year. Therefore, he has 3 different valuation option available for his stock. Sec 70-45 of ITAA 1997 facilitates the value of the trading stock at the end of the income year at its:
Cost
Market selling
Replacement cost
Cost: As we know that Fast Ed is the retailer and wholesalers
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Replacement Value: It is the price at which the taxpayer can actually buy its stock from the normal market on the last day of the year of income. But the taxpayer can use this cost method only if they can find the identical products to their replaced items in the market.
b) Sec 70-30 0f ITAA 1997 advocates that the assets of taxpayer becomes trading stock when he has deemed to have disposed of his assets. Fast Ed has disposed of his asset as he no longer holds the ownership on the very asset. Further Sec70-90(1) considers the assessable income as the market value of the item on the day of the disposal. Here, Fast Ed gave a car costing $ 17,000 with the market value of $19,000 to Slick Sam for the settlement of his debt of $ 18,000. Fast Ed has incurred capital loss of $1,000 ($19,000-$18,000) it is so because in order to settle his debt of $ 18,000 he has given up his car worth $19,000. Thus, $ 1,000 becomes the tax offsets and is deducted from the assessable income.
c) Fast Ed took one of his cars for his daughter which is now been used for the family purpose. He may argue to get tax offset under Div. 30 of ITAA 1997 as a deduction for gifts or contribution. However, Sec 78 (3) advocates that such property may not be deductible as the giver still retains the right to use his property. In such case, Fast Ed will not get the deduction facilities in his assessable income. It is so because in order to get such facility
After thoroughly researching taxable and nontaxable income, the Pontiac G6 sedans awarded to Oprah’s television audience would have been subject to federal taxation and included in their gross income. The Code of Federal
After thoroughly researching taxable and nontaxable income, the Pontiac G6 sedans awarded to Oprah’s television audience would have been subject to federal taxation and included in their gross income. The Code of Federal
Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes.
“Recognition of an impairment loss and the recognition of a gain on the extinguishment of debt are separate events, and each event should be recognized in the period in which it occurs. The Board believes that the recognition of an impairment loss should be based on the measurement of the asset at its fair value and that the existence of nonrecourse debt should not influence that measurement.” (Statement 144, paragraph B34)
Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.
b. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the
Under the Reg. §1.47-3(f) (5) (ii), the transferor of the section 38 property in any taxable year dose not retain a substantial interest in the trade or business directly or indirectly. According to this code, the transferor does not need to make the payment for tax of the interest during the property transaction only if the property can be qualified to “section 38 property” which indicate property (1) with respect to which depreciation is allowable to the taxpayer (2) has an estimated useful life of 3 years or more (3) which is tangible personal property or other tangible property. In this case, the machinery purchased by the individual two years ago can be applied for the “section 38 property” which also means the transferor does not need to pay for the interest happened during the transaction. And because of the gift of stock made by the individual caused a reduction in his interest. Which occurred at a time when the useful lives were just taken into account in computing the credit about the “section 38 property”. Unless his remain interest is a substantial interest, the section 47(b) would no longer be applicable and total
In 2013 Marianne sold land, building and equipment with a combined basis of $150,000 to an unrelated third party and in return received an installment note of $80,000 per year for five years. Of the $250,000 gain on sale, $150,000 was classified as Section 1245 gain and the remaining $100,000 was Section 1231 gain. In 2013, Marianne had a capital loss carryover of $60,000, $50,000 of which she used to offset her Section 1231 gain; she recognized no Section 1245 gain. The following year she recognized $40,000 of 1245 gain and $10,000 of Section 1231 gain which she promptly offset with the last $10,000 of the capital loss carryover. In 2015, she recognized $50,000 Section 1245 gain and no Section 1231 gain.
Internal Revenue Code section 1221 defines “capital asset” as “property held by the taxpayer (whether or not connected with his trade or business), but does not include (1) Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.” As defined, Haig Simmons’ anthracite coal home heating and delivery service business holds anthracite coal in the ordinary course of business and therefore, is not considered a capital asset. Section 64 defines ordinary income as income earned from providing services or the sale of goods (inventory) “which is not a capital asset.” Based on this definition, any asset that does not classify as a capital asset is an ordinary asset. Since Haig Simmons was providing home coal heating services for consumers, any inventory kept was for the purpose of maintaining a steady, stable, and regular supply of coal and not held as a long term asset for future sale gains.
Hot assets cause a portion of the gain or loss on the sale of a partnership interest to be classified as ordinary rather than capital.
Debit Retained Earnings $96,000; credit Common Stock Dividend Distributable $80,000; credit Paid-In Capital in Excess of Par Value, Common Stock $16,000.
____ 27. In a § 351 transaction, Gerald transfers equipment worth $85,000 (basis of $120,000) in
3. All the stock is Sec. 1244 Stock. Under Sec. 1244, if Common stock is sold at loss or becomes worthless, the at least part of the loss would become ordinary loss that could be used to offset ordinary income.
ii. Using double- declining method, the first year ending balance of $6,404 is subtracted form the proceeds of the sale netting in a gain of $1,096 on the disposal. Once this is subtracted form the previous years depreciation $4,269, you get a total income statement impact of $3,173.
4. Assess the value of Amtelecom Communications using available valuation methods including DCF and multiples. Which valuation method is most suitable for each sales alternative? What are the expected net proceeds for each sales alternative?