dumb Accounting technical question about sale of an asset - can't seem to figure it out
I have a dumb accounting question, but for some reason I'm having trouble thinking it through.
The question is "You just sold an asset worth $200M. Walk me through the three financial statements."
If you sell the asset and its market value is $200M, then there's no hit to IS right? And then on the CF, cash flow from investing is up $200M, and then on the B/S, cash is up 200 and the asset is down 200 right? assuming it's a long term asset.
Is the I/S only affected if there's a gain/loss on the sale of the asset? Thanks, and sorry for the embarassingly dumb question.
Gain/loss on sale of asset is excess of sale price over book value. Unless you're marking the asset value to market every day, your book value will normally not be equal to the market value.
Accounting entry is:
DR Cash CR Net book value of asset (should net of depreciation and amortisation) CR Profit on sale
You can see from there what goes to B/S (cash increases by sale price, book value decreases to nil) and income statement (profit = excess of sale price over the book value of the asset).
Cash flow statement - iinclud cash inflow from investing activities equal to the amount of the selling price.
For bonus points - you may want to point out that, where the asset has previously been impaired/written down, some accoutning standards may require you to reverse the impairment.
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