# Asset Held for Sale

Just looking for clarification on how to treat the Income Statement when an asset-held-for-sale is sold.

Let’s say that you buy an asset at t = 0 for \$100.

At t = 1 the asset is worth \$130.

At t = 2, you finally sell the asset for \$150.

What amount goes through that final period’s income statement? Is it the full \$50 from initial purchase? Or is it jus the incremental \$20?

At t=0 you’ve got a \$100 Asset & \$100 Equity.

At t=1, you’ve got \$130 Asset on the Balance Sheet, and then your total equity is \$130 as well, and it’s composed of \$100 of retained earnings and \$30 in an “unrealized gains” bucket.

At t=2, you’ve got \$150 Cash on the Balance Sheet now, and your total equity is \$150 as well, but what amount gets declared “Net Income” in the Income Statement?

Is it:

A) You put the full \$50 through the income statement. The balance sheet balances from your putting that full \$50 into Retained Earnings and you “delete” the previous bucket of unrealized gains that was in the equity statement?

B) You put the incremental \$20 gain through the income statement. The balance sheet balances from you putting that \$20 into retained earnings, and then you also transfer the \$30 of unrealized gains to the retained earnings bucket as well.

If it is Held-for-trade security you recognize both the realized and the unrealized gains or loses from the security’s value. So, in this case those \$30 were already accounted on IS previously, hence in t=2 (sale) you account only a 20 realized gain.

If it is Available-for-sale, those \$30 of unrealized gains were accounted on the Comprehensive income statement in t=1 so when you sale the asset on t=2 you account \$20 gain + \$30 reclasified unrealized gain as a realized gain from Comprehensive IS to Income Statement.

In both cases the asset is at fair value on balance sheet.