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Scenario $5$: Partial Disposition and Cost Recovery

Manufacturing equipment with an original cost of $$150,000$ and accumulated depreciation of $$80,000$ is partially damaged.

Insurance pays $$40,000,$ and a smaller replacement component is purchased for $$25,000.$

Calculate:

The adjusted basis of the equipment after the incident.

Any recognized gain or loss.

How will depreciation be calculated going forward?

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