Suppose that 15 years ago Bill Evans started the Samurai Machinery (SM) Corp., which purchased plant and equipment costing $80,000. These have been the only assets of SM and the company has no debts. Bill is the sole proprietor of SM and owns all the shares. For tax purposes, the assets of SM have been depreciated using the straight-line method over 10 years and have no salvage value. The annual depreciation expense has been $8,000 (= $80,000 / 10) .

The machinery has no accounting value today (i.e., it has been written off the books). However, because of inflation, the fair market value of the machinery is $200,000. As a consequence, the S. A. Steel Company has bid $200,000 for all of the outstanding stock of Samurai.