Question

Hello, where do we find / how do we calculate the value of "Gains on asset sales" (value in 2010 equals 70) to reformulated the income statement? thank you.
(P&G Case, reformulated income statement)

Answer 1

Gains on asset sale comes from the situation where the salvage value of an asset is greater than the book value of the asset. The book value of the asset is equal to the purchase price of the asset+ any setup and installation cost (collectively called as tax basis) for the capital asset. The firm could use any method for depreciation- straight line, accelerated, MARCS etc. The book value of the asset will be equal to the carrying cost of the asset, which is equal to the tax basis value of the asset less the accumulated depreciation till the year. If at any point, the company decides to sell this asset as salvage and if the salvage value is different from the book value or carrying value of the asset, then there arises a tax consideration on the assets. If the salvage value is more than the carrying cost, there is a tax liability and tax payable on the gains. The gain in this case is gain on asset sales. It can be quoted in different line items in a profit and loss statement, depending on the nature of the asset and the accounting practices of the company. It can be noted and accounted in one of following line entries-

• Non-operating gains/ losses
• Gains on sale of assets
• Gains/ losses from discontinued operations
• Realized gains/ losses on asset sales

The value is often quoted after-tax basis. In few cases, the gains may be directly included in the changes to retained earnings statement, though this is unlikely in case of P&G. In all cases, the details of the asset sale should be included in the notes to accounts section in the annual statement of the company.