A company is considering purchasing a fleet of delivery vans which are available

Question

A company is considering purchasing a fleet of delivery vans which are available with either a diesel or gasoline fueled motor. The gasoline powered van has an initial price of $29,750, the diesel powered one costs $32,250. Both vehicles have a salvage value of $5,000 after 5 years.

The fuel economy of the diesel van is 17MPG, the gasoline powered van achieves 12.5MPG. Both vehicles have a salvage value of $5,000 after 5 years. Both gasoline and diesel are available at $3.59 per gallon. The company uses 20% for MARR (Minimal Accepted Rate of Return).

If the company uses 5 year MACRS depreciation, what is the capital gain or loss per vehicle if the vans are sold after exactly four years for a salvage value of $6,000 (new salvage value)?

PLEASE SHOW ALL WORK AND EQUATIONS USED TO THE GET FINAL ANSWERS TO THE PROBLEM.

Explanation / Answer

we see Capital gain is of two types :- Short term capital gain & Long term capital gain If you transfer any of your capital assets then the gain arises on transfer is known as capital gain. if transfer happens within 3 years from the date of transfer is called short term otherwise long term. Only shares & debentures if transfer even after one year then the gain is long term short term capital gain taxable at normal rate of assessee while long term cap. gain is taxable at flat rate of 20%. Therefore The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :— (i) expenditure incurred wholly and exclusively in connection with such transfer i.e. Brokerage, ST on brokerage, transaction chg on NSE, other chgs levied by broker as per contract note but not amc charges (as these are personal charges and cannot be claimed) (ii) the indexed cost of acquisition of the shares Hence 6000 - 5000 / 29750

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