Diaz Company owns a machine that cost $125,300 and has accumulated depreciation of $92,300. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation.   The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $17,100 cash. Diaz sold the machine for $33,000 cash. Diaz sold the machine for $40,400 cash.

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Q: Gain on Disposal

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.