Gain on sale of assets definition
/What is a Gain on Sale of Assets?
A gain on sale of assets arises when an asset is sold for more than its carrying amount . The carrying amount is the purchase price of the asset, minus any subsequent depreciation and impairment charges.
Presentation of a Gain on Sale of Assets
A gain on sale of assets is usually classified as a non-operating item on the income statement of the selling entity. This is because it is generated by a transaction that falls outside of the normal operating activities of the business. However, if the main activity of a business is the purchase and sale of assets (such as a farm equipment dealer), then a gain on sale of assets might very well be classified within the operating income section of the income statement.
Example of a Gain on Sale of Assets
Here are several examples of a gain on sale of assets:
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Gain on sale of machinery . As an example of a gain on sale of assets, a business buys a machine for $10,000 and subsequently records $3,000 of depreciation, resulting in a carrying amount of $7,000. The company then sells the machine for $7,500, which results in a gain on sale of assets of $500.
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Gain on sale of a vehicle . An electric utility buys a bucket truck for $100,000. It has a useful life of 10 years, with no salvage value, meaning that it is expected to depreciate $10,000 per year. After six years, the book value has dropped to $40,000, since $60,000 of depreciation has been charged against it. The utility then sells the truck for $50,000, resulting in a gain on sale of assets of $10,000. This is calculated as the $50,000 selling price minus its remaining book value of $40,000.
