Question

Norfolk Southern Corporation, one of the nation’s premier transportation companies, reported the following amounts in the asset section of its balance sheets for the years ended December 31, 2016 and 2015: 

In addition, information from the 2016 statement of cash flows and related notes reported the following items ($ in millions):

Depreciation.........................................................$1,030 

Additions to property and equipment..........1,887 

Sales price of property and equipment..........130 

 

Required: 

For what amount was the sales price above book value of property and equipment sold for the year ended December 31, 2016?

Answer 1

Sale or exchange of tangible assets must be recorded after taking in to consideration the gain or loss on sale or exchange. However, the assets sold ceases to remain in the books along with the accumulated depreciation.

 

The net book value of assets sold is required to be computed first to arrive at the gain on the sale of asset. The net book value is computed by adding the cost of purchase in the beginning balance of the asset and then deducting the current year depreciation from the sum to arrive at the net book value of assets which should have been. The actual balance of assets is deducted from it to arrive at the net book value of assets sold. The same is computed as under:

Computation of net book value of assets sold:
Beginning balance of Property and equipment	28,992
Add: Cost of purchase	1,887
Less: Depreciation charged	-1,030
Balance to be shown at the end	29,849
Less: Actual balance at the end	29,751
Bok value of property and equipment sold	98

 

After computing the net book value of assets sold, it is compared with the actual sales price to arrive at the gain on sale of assets, as under:

Computation of gain on sale of assets:
Sale price of property and equipment	130
Less: Book value of property and equipment sold	98
Gain on sale property and equipment	32

 

To conclude, the exchange or sale of tangible assets must be accounted after considering the net book value and the fair value received.

Sale or exchange of tangible assets must be recorded after taking in to consideration the gain or loss on sale or exchange. However, the assets sold ceases to remain in the books along with the accumulated depreciation.