What would happen if machinery is sold for less than book value?
It's called, starring bankruptcy in the face. Of course re-organization is common place!
Short answer, you have a book loss. Long answer, first we can make no tax assumptions here, not enough info. But for book value, I assume you mean the value on the books of whoever owned it before the sale. If you sell something for less than than the value on your books, you have a book loss. For instance, you bought a computer for $900, intending to keep it for 3 years. After the end of the first year, after a full year depreciation (straight line), the book value is $600. Let us say Dell comes out with something totally new and you want it. You buy it and want to get rid of your old one. But because of the new Dell almost everyone is buying, nobody really wants yours. You find someone to buy it for $200. Your book value was $600, you sold it for $200. You have a loss of $400. On your books is $900 debit to equipment and $300 credit to accumulated depreciation. So your entry to post the sale of your computer is this (Dr is debit, Cr is credit): Dr Cash $200 Dr Accumulated Depreciation $300 Dr Loss on Sale of Asset$400 Cr Computer $900 The entry balances.
You record a loss: Say you sell PPE for $5 but book value is $13 (say you bought it for $20 and have accumulated depreciation of $7). You would record: Cash $5 Acc Dep $7 ______Loss on Sale of PPE $8 ______PPE $20 This loss decreases your net income and also shows up as an add-back in your statement of cash flows from operations.
