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:
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.
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.