IMANET Exam CMA Topic 1 Question 76 Discussion

Since the salvage company's offer is for more than the book value of the equipment, an accrual- basis gain would result A loss on disposal of old equipment results in a tax benefit, since the loss reduces accrual basis income. Therefore, a gain. which increases accrual-basis income, results in a tax detriment, and the reduction to the net initial investment will be less than if the salvage company's offer had resulted in a loss.