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    sammez's Avatar
    sammez Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Jul 2, 2013, 02:42 PM
    Accounting questions
    A business has a vehicle (fully depreciated) that gets totaled in a wreck.
    The insurance company offers them either $9,000 for the vehicle OR $7,000 and the business keeps the vehicle.
    The company decides to keeps the vehicle and also pays $1,500 to a repair shop to fix it.
    Is the new basis of the vehicle $3,500 ($2,000 plus $1,500) OR $0 since it was fully depreciated.
    Or maybe it is something different.
    Thanks.
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
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    #2

    Jul 7, 2013, 06:50 PM
    Let's look at the elements of this

    A business has a vehicle (fully depreciated) that gets totaled in a wreck.

    The insurance company offers them either $9,000 for the vehicle OR $7,000 and the business keeps the vehicle.
    So you have a realisation of an asset which represents a profit on disposal. The net realisation is $5500

    The company decides to keeps the vehicle and also pays $1,500 to a repair shop to fix it.
    Is the new basis of the vehicle $3,500 ($2,000 plus $1,500) OR $0 since it was fully depreciated.
    Or maybe it is something different.


    The alternative view is the vehicle has been disposed of for a $7000 profit and you have acquired an asset for $1500 cash. I think this might be the IRS view
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