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which_chickSeen on Facebook this morning:
You buy a cow for $800
You sell the cow for $1000
You buy the cow again for $1100
You sell the cow for $1300
"how much money did you make?"
Okay, this problem is asking for our NET PROFIT on the cow sales. Right. I'm down with that. Let's get started.
We buy the cow for $800. That's our BASIS in the cow. We have to get that much out of the sale before there's any PROFIT in the cow sale. Our BASIS in the cow also needs to be adjusted by depreciation over time. Probably. Are cows depreciated?
(a quick google later)
Yes. We DO depreciate cows. And here, I'm going to quote: "The average number of productive years for most cows in a herd is from three to five years, assuming a 10% to 20% cow herd replacement rate... Cow depreciation is a significant expense." (This information brought to you by this website which discusses dairy cow depreciation.) The math problem does not specify whether it's a dairy cow or a beef cow. (Beef cow depreciation is different. You can read about it here.) Also it does not specify how long the cow was owned each time before being sold again. Why the fuck not? These things matter!
It's a shit math problem, is why it does not address these things. Kind of like the half a dog shit math problem. No wonder people hate math.
Okay. So it's a dairy cow. I have spoken, so mote it be. And the time of ownership is one year and one day* for each of the ownership periods. Again, I am here making some executive decisions so that we can proceed with the fucking problem which was inadequately written to start with.
We buy a cow for $800. We own the cow for 1 year and 1 day*. Basis in cow now $800-$160 of depreciation = $640 (we are assuming a 5 year straight line depreciation for the cow which is in line with models used in the field for dairy cows). Then we sold the cow for $1000, profit is $1000-$640 = $360 in profit for this sale. This will be taxed as a "long term capital gain" as the asset was held for more than one year.
Later, we buy the same cow again for $1100. They act like buying "the same cow" matters but it does not. The only thing that matters is what we pay for the cow, which becomes our fucking basis. Which fucking cow it is -- totally irrelevant. Our basis in the cow this time is the purchase price, $1100. We keep the cow for a year and a day*, so our basis in the cow is now $1100 - $220 = $880. We sell the cow for $1300. Our profit here is $1300 - $880 = $420, again taxed as a LTCG.
Our gross profit on the two cow sales is $780.00. But there's taxes. Taxes are money that comes out before we can arrive at "net profit". The problem is, I expect, asking for net profit.
As dairy farmers (we are selling cows of the dairy persuasion), we probably make enough money to be in the 15% bracket for LTCG but not so much money that we're in the 20% bracket.
SO, $780*.15 = $117, so our NET PROFIT is 780-117, or $663.
Did you come up with $400? You did? LOL. That's because you are bad at math and bad at business and a total failure as a human being. My way is better.
And yes, I was a fucking delight to have as a student in school. I was.
*Sometimes when dealing with bargains of a supernatural nature, the issue of a year and a day comes up and I can only assume that this has something to do with asset depreciation or long term capital gains. I mean, that's gotta be it, right? What's the depreciation on the value of a newborn's smile or the true name of a Fae? Man, if they have to sign their fucking returns, the power of accountants in the Realm has to be insane.
You buy a cow for $800
You sell the cow for $1000
You buy the cow again for $1100
You sell the cow for $1300
"how much money did you make?"
Okay, this problem is asking for our NET PROFIT on the cow sales. Right. I'm down with that. Let's get started.
We buy the cow for $800. That's our BASIS in the cow. We have to get that much out of the sale before there's any PROFIT in the cow sale. Our BASIS in the cow also needs to be adjusted by depreciation over time. Probably. Are cows depreciated?
(a quick google later)
Yes. We DO depreciate cows. And here, I'm going to quote: "The average number of productive years for most cows in a herd is from three to five years, assuming a 10% to 20% cow herd replacement rate... Cow depreciation is a significant expense." (This information brought to you by this website which discusses dairy cow depreciation.) The math problem does not specify whether it's a dairy cow or a beef cow. (Beef cow depreciation is different. You can read about it here.) Also it does not specify how long the cow was owned each time before being sold again. Why the fuck not? These things matter!
It's a shit math problem, is why it does not address these things. Kind of like the half a dog shit math problem. No wonder people hate math.
Okay. So it's a dairy cow. I have spoken, so mote it be. And the time of ownership is one year and one day* for each of the ownership periods. Again, I am here making some executive decisions so that we can proceed with the fucking problem which was inadequately written to start with.
We buy a cow for $800. We own the cow for 1 year and 1 day*. Basis in cow now $800-$160 of depreciation = $640 (we are assuming a 5 year straight line depreciation for the cow which is in line with models used in the field for dairy cows). Then we sold the cow for $1000, profit is $1000-$640 = $360 in profit for this sale. This will be taxed as a "long term capital gain" as the asset was held for more than one year.
Later, we buy the same cow again for $1100. They act like buying "the same cow" matters but it does not. The only thing that matters is what we pay for the cow, which becomes our fucking basis. Which fucking cow it is -- totally irrelevant. Our basis in the cow this time is the purchase price, $1100. We keep the cow for a year and a day*, so our basis in the cow is now $1100 - $220 = $880. We sell the cow for $1300. Our profit here is $1300 - $880 = $420, again taxed as a LTCG.
Our gross profit on the two cow sales is $780.00. But there's taxes. Taxes are money that comes out before we can arrive at "net profit". The problem is, I expect, asking for net profit.
As dairy farmers (we are selling cows of the dairy persuasion), we probably make enough money to be in the 15% bracket for LTCG but not so much money that we're in the 20% bracket.
SO, $780*.15 = $117, so our NET PROFIT is 780-117, or $663.
Did you come up with $400? You did? LOL. That's because you are bad at math and bad at business and a total failure as a human being. My way is better.
And yes, I was a fucking delight to have as a student in school. I was.
*Sometimes when dealing with bargains of a supernatural nature, the issue of a year and a day comes up and I can only assume that this has something to do with asset depreciation or long term capital gains. I mean, that's gotta be it, right? What's the depreciation on the value of a newborn's smile or the true name of a Fae? Man, if they have to sign their fucking returns, the power of accountants in the Realm has to be insane.
