You have purchased a machine for $120,000 and for financial reporting purposes are amortizing it on a straight line basis over four years. At the end of year three you sell it for $10,000. The transaction will show on the financial statements as:

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The machine's cost ($120,000) is amortized over four years, resulting in an annual depreciation of $30,000 ($120,000/4). After three years, the accumulated depreciation is $90,000 ($30,000 x 3), leaving a book value of $30,000 ($120,000 - $90,000). Selling it for $10,000 results in a loss of $20,000 ($30,000 book value - $10,000 sale price).

You Have Purchased a Machine for $120,000 and for Financial