Carver Inc. recently replaced a piece of automatic equipment at a net price of $4,000, f.o.b. factory.?

Question

The replacement was necessary because one of Carver's customers had accidentally backed his truck into Carver's original equipment and made it inoperable. Because of the accident, the equipment had no resale value to anyone and had to be scrapped. Carver's insurance policy provided for a replacement of Carver's equipment and paid the price of the new equipment directly to the new equipment manufacturer, minus the deductible amount paid to the manufacturer by Carver. The $4,000 that Carver paid was the amount of the deductible that Carver has to pay on any single claim on its insurance policy. The new equipment represents the same value-in-use to Carver. The used equipment had originally cost $65,000. It also had a book value of $45,000 at the time of the accident and a second-hand market value of $50,800 before the accident, based on recent transactions involving similar equipment. Freight and installation charges for the new equipment required Carver to pay an additional $1,100 cash.

Answer 1

So what's your question? I think that the accountants would want to add the $5,100 that we spent to the book value, making the book value $50,100. As a manager, I would prefer to charge off the $5100 as an expense and charge it to something like "accident recovery."