The Shepparton Corporation sells a capital asset with an original cost of $230 000 and accumulated depreciation of $205 000 for a salvage price of $36 000.Shepparton's tax rate is 30%.Calculate the after-tax cash inflow from the disposal of the capital asset.

Question

Quizplus · Accepted Answer

The book value of the asset can be calculated as:
Book value = Original cost - Accumulated depreciation
Book value = $230,000 - $205,000
Book value = $25,000

Since the salvage value is greater than the book value, there is a gain on the sale of the asset:
Gain on sale = Salvage value - Book value
Gain on sale = $36,000 - $25,000
Gain on sale = $11,000

The taxable gain is 30% of the gain on sale:
Taxable gain = 30% x $11,000
Taxable gain = $3,300

The after-tax cash inflow is the salvage value minus the taxes paid on the gain:
After-tax cash inflow = Salvage value - Taxes paid
After-tax cash inflow = $36,000 - $3,300
After-tax cash inflow = $32,700

Therefore, the after-tax cash inflow from the disposal of the capital asset is $32,700. Option D is the correct answer.

The Shepparton Corporation Sells a Capital Asset with an Original