Max Power Ltd owns a machine that was originally purchased on 10 August 2018 at cost of $50,000 and had an adjusted value for income tax purposes as at 30 June 2019 of $40,000. The machine was late destroyed by a fire on 1 July 2019, and the insurance proceeds were $39,000. The machine was immediately replaced with new model costing $66,000. The new machine has an effective life of seven years.

Assuming that Max Power Ltd has elected to claim the decline in value deduction based on the diminishing value depreciation method, and will continue to claim on that basis.

Required:

a). Explain the tax implications on the insurance proceeds that the company received.

b). Calculate the decline in value for the new machine for the tax year ended 30 June 2020.

c). If Max Power Ltd ceased business on 1 July 2020 and sold the new machine for $56,000, how would this affect its assessable income?