Question

A flood damaged a machine used in Ralph’s business. The machine had been purchased 2 years...

A flood damaged a machine used in Ralph’s business. The machine had been purchased 2 years earlier at a cost of $14,000, and Ralph had claimed $4,000 in depreciation. The FMV of the machine was $18,000 before the flood and $3,000 after the flood. The machine was insured, and Ralph was reimbursed $12,000. What is Ralph’s gain or loss from the casualty?

  • A.$2,000 loss.
  • B.$3,000 loss.
  • C.$2,000 gain.
  • D.$15,000 loss.
Business   Accounting   
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Answer #1

Ans:

As per the given problem,

The flood damaged the machine used in Ralph's business. The Carrying cost of machine is :

Carrying Cost= $14000 - $4000= $10000

Therefore, currently the carrying cost of machine is $10000.

FMV is $18000 before the flood and $3000 after the flood.

The insurance received from the insurance company is $12000.

Since the carrying cost of the machine was only $10000 while the amount received from Insurance company was $12000 so it is a gain for Ralph ltd = $12000-10000= $2000.

Ans: $2000 gain. Option C

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