How is gain or loss on sale of an asset determined?

How is gain or loss on sale of an asset determined?

• A. Sales amount received minus book value of the asset
• B. Cost minus salvage value
• C. Book value minus sale proceeds
• D. Accumulated depreciation minus sale price

Answer: (A)

The main idea is to compare what you actually receive from selling the asset to what the asset is currently worth on the books. The amount you compare is the sale price minus the asset’s book value (carrying amount). The book value is the original cost less any accumulated depreciation for a tangible asset. If the sale price is higher than the book value, you record a gain; if it’s lower, you record a loss. For example, an asset costing 50,000 with 20,000 accumulated depreciation has a book value of 30,000. Selling for 35,000 yields a 5,000 gain; selling for 25,000 yields a 5,000 loss. The key is sale price minus book value.

The main idea is to compare what you actually receive from selling the asset to what the asset is currently worth on the books. The amount you compare is the sale price minus the asset’s book value (carrying amount). The book value is the original cost less any accumulated depreciation for a tangible asset. If the sale price is higher than the book value, you record a gain; if it’s lower, you record a loss. For example, an asset costing 50,000 with 20,000 accumulated depreciation has a book value of 30,000. Selling for 35,000 yields a 5,000 gain; selling for 25,000 yields a 5,000 loss. The key is sale price minus book value.