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Realized amount is the total compensation received from selling a product or service, which may be a profit or loss. It is calculated by subtracting the cost basis from the total consideration, and does not include ancillary costs. The total consideration may include the transfer of any debt attached to the asset being sold.
The realized amount is the total amount of compensation that is received when selling some type of good or service to a buyer. This amount may be in the form of a profit of some kind, if the seller is able to move the products at a profit. When the good or service is sold at a loss, the amount realized is presented as a negative number. Calculating this amount is useful when preparing tax returns, as it is necessary to determine if taxable gains were made, or if the amount lost might be eligible for some type of tax deduction.
Unlike other calculations involving sales of goods and services, Realized Amount focuses solely on the actual amount paid for the products and does not reflect any ancillary or related costs. This means that the figure does not include other expenses, such as the cost of transporting the products to the buyer, or providing a sales commission to a seller or agent for their role in the selling activity. Expenses of these types are accounted for in other ways, but they do not change the amount realized.
A basic approach to determining the amount realized requires identifying what is known as the total consideration for the transaction, then subtracting the cost basis from that amount. Total consideration is the total amount paid by the seller to acquire the subject asset, while the cost basis is the value of the asset that is adjusted for depreciation or other factors that affect the taxable value of that asset. Once the subtraction of the cost basis from the total consideration is complete, the remaining figure constitutes the amount realized.
It is important to note that in the process of determining the amount realized, the total consideration may also include the transfer of any debt that is currently attached to the asset being sold, as well as any cash payments given to the seller. For example, if a car owner wishes to sell a vehicle that is not fully paid off, the deal can be structured so that the buyer pays a certain amount to the seller and also assumes responsibility for any remaining payments due on the car loan. When this is the case, the total consideration will include both the cash paid to the seller and the full remaining balance on that auto loan. This is because the seller is realizing not only the cash from the sale, but also the consideration of no longer being responsible for that car loan.
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