Question

An office machine used by Josie in her accounting business n as completely destroyed by fire. The adjusted basis of the machine was $8,000 (origrnai basis of $14,000 less accumulated depreciation of $5,000). The machine was not insured. Calculate the amount and nature of Josie's gain or loss as a result of this casualty.

Answer 1

Ans- $8,000 is the ordinary loss as this is only casualty gain or loss.

There is no chance for recovery as the machine is not insured.

The adjusted basis of the machine was $8,000 which is original basis of $14,000 less accumulated deprectaion of $5,000 but the accumulated depreciation must be $6,000 ($14,000-$6,000=$8,000). I assumed that the accumulated depreciation is $6,000 and if it is $5,000 then the adjusted amount of machine must be $9,000. ($14,000-$5,000=$9,000)