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Mays Company sold a machine for $10,000 cash. The machine originally cost $65,000 and the company...

Mays Company sold a machine for $10,000 cash. The machine originally cost $65,000 and the company had recognized $53,000 in depreciation over the life of the machine. What is the effect of this sale on Mays Company's income statement and its statement of cash flows?

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Answer #1

Asset cost = 65000

Book value of asset = Cost – accumulated depreciation

                                      = 65000 – 53000

                                       = 12000

The asset was sold for 10000, which is less than its book value so company has suffered loss on sale of asset

Loss on sale of asset = 12000 – 10000 = 2000

The loss will attract a tax benefit, the tax benefit will be calculated by

Loss on sale of asset * Tax rate

The amount will be added to the 10000 amount.

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