New equipment was purchased with estimated useful life of 5 years at a cost of $

Question

New equipment was purchased with estimated useful life of 5 years at a cost of $175,000, installation of $21,000, freight charges $4,000 and salvage value estimated to be $25,000. In purchasing this new equipment, the previous machine was traded in which had an original cost of $180,000 and had accumulated depreciation of $144,000. The trade-in allowance was $21,000 at the time of the exchange. What should be the cost basis of the new equipment for tax depreciation purpose? Show your method, approach, calculations to the best of your ability

someone gave me this answer but it was wrong:

$175,000+$21000 +$4000-[$180,000-$144,000-$21000)

Cost basis=$185,000

Explanation / Answer

The asset value for the purpose of depreciation would be as under:

Purchase cost + installation + freight charges - salvage value

= $175,000+ $21,000+ $4,000- $ 25,000 = $175,000

Note: the old asset value, old depreciation and trade in allowance would be used for the purpose of computation of loss/ profit on Trade in allowance transaction as under:

New Asset Dr. - $175,000

Loss Dr. 15,000 (balancing figure)

Old Asset Cr - $ 36,000 (balance carrying cost on the date of trade-in $180,000-$144,000)

Cash Cr - $ 154,000 (purchase cost of $175,000 less trade in allowance $21000)

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