A machine was bought for €200,000, it has a useful life of five years. The asset has been deemed impaired in the third year with an impairment of €20,000. It is sold at the end of the fourth year for €100,000. What is the gain of sale?
Solution. B is correct.
The depreciation of €200,000 / 5 = €40,000 has to change to €30,000 in the fourth year, because the book value at the end of the third year (200,000 – 3*40,000 – 20,000 = €60,000) needs to be allocated to the two remaining years, year 4 and 5.
Therefore, the gain of sale amounts to
gain of sale = initial cost – remaining book value when sold = 100,000 – 30,000 = €70,000.