Which statement best describes the proper accounting treatment when disposing of property, plant, and equipment?

Which statement best describes the proper accounting treatment when disposing of property, plant, and equipment?

• A. Remove asset cost and accumulated depreciation; recognize gain or loss if proceeds differ from book value; debit cash or other asset as received.
• B. Record depreciation only and ignore any gain or loss on disposal.
• C. Debit cash and credit accumulated depreciation only.
• D. Increase the asset's cost to reflect disposal.

Answer: (A)

Disposing of property, plant, and equipment requires removing the asset’s recorded cost and its accumulated depreciation from the books and then recognizing any gain or loss based on the disposal proceeds relative to the net book value (cost minus accumulated depreciation). The proper approach is to debit the accumulated depreciation to clear it, credit the asset to remove its cost, and debit cash or other asset received. If the disposal proceeds differ from the net book value, you record a gain if proceeds exceed NBV or a loss if proceeds are less. This reflects the true economic outcome of the disposal. The other approaches miss or misstate these steps: simply recording depreciation ignores removing the asset and recognizing gain/loss; increasing the asset’s cost on disposal is incorrect; and debiting cash while only adjusting accumulated depreciation leaves the asset’s cost on the books.

Disposing of property, plant, and equipment requires removing the asset’s recorded cost and its accumulated depreciation from the books and then recognizing any gain or loss based on the disposal proceeds relative to the net book value (cost minus accumulated depreciation). The proper approach is to debit the accumulated depreciation to clear it, credit the asset to remove its cost, and debit cash or other asset received. If the disposal proceeds differ from the net book value, you record a gain if proceeds exceed NBV or a loss if proceeds are less. This reflects the true economic outcome of the disposal.

The other approaches miss or misstate these steps: simply recording depreciation ignores removing the asset and recognizing gain/loss; increasing the asset’s cost on disposal is incorrect; and debiting cash while only adjusting accumulated depreciation leaves the asset’s cost on the books.