Plant Asset Sales: When a Plant Asset is Sold for More Than Its Book Value

When a Plant Asset is Sold for More Than Its Book Value

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Question

When a plant asset is sold for more than its book value

Answers

Explanations

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A. B. C. D.

D

Gain or loss on disposal of a fixed asset is calculated by subtracting the book value (Original cost - Accumulated Depreciation) from the cash received.

When a plant asset is sold for more than its book value, it means that the asset is sold at a gain. The book value of an asset is its original cost minus accumulated depreciation. Let's evaluate each answer choice to determine the correct one:

A. book value of the asset minus gain on disposal equals cash received: This statement is incorrect. The book value of the asset minus the gain on disposal would not equal the cash received because the gain on disposal is an additional amount received above the book value.

B. cash received plus accumulated depreciation plus gain on disposal equals the original cost: This statement is incorrect. Adding cash received, accumulated depreciation, and gain on disposal would not equal the original cost because the accumulated depreciation reduces the original cost over time.

C. original cost minus accumulated depreciation equals cash received plus gain on disposal: This statement is incorrect. Subtracting accumulated depreciation from the original cost would not equal cash received plus the gain on disposal because the gain on disposal is an additional amount received.

D. cash received plus accumulated depreciation minus gain on disposal equals the original cost: This statement is correct. When a plant asset is sold for more than its book value, the cash received is the amount received from the sale. Accumulated depreciation represents the total depreciation expense recognized over the life of the asset. The gain on disposal is the excess amount received above the book value. Subtracting the gain on disposal from the cash received and adding the accumulated depreciation would result in the original cost of the asset.

Therefore, the correct answer is D. cash received plus accumulated depreciation minus gain on disposal equals the original cost.