Robex Corporation purchased a long-term asset for $80,000

Finance Aug 23, 2020

Robex Corporation purchased a long-term asset for $80,000. The asset has a 20% CCA rate. At the end of year 5, Robex sold the asset for 25,000. Given this information, determine the value of the terminal loss or recapture at the end of year 5. Show calculations in detail.

Expert Solution

Computation of the value of terminal loss or recaptured gains at the end of year 5:-

Value of at the end of year 5 = Value of long term asset * (1 - 20%)^n

= $80,000 * (1 - 20%)^5

= $80,000 * 0.32768

= $26,214.40

Terminal loss = Value of at the end of year 5 - Sales price

= $26,214.40 - $25,000

= $1,214.40

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