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To determine whether there is a gain or loss on a disposal of a plant​ asset,...

To determine whether there is a gain or loss on a disposal of a plant​ asset, the​ asset's original cost is compared to the cash received and any other assets received for disposing of the plant asset.

True or False

Business   Accounting   
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Answer #1

The Statement is FALSE.

This is because, in order to determine whether there has been a gain or loss on a disposal of a plant asset, the asset’s ORIGINAL COST IS NOT COMPARED TO THE CASH RECEIVED and ANY OTHER ASSET RECEIEVED for disposing of that plant Asset.

Rather, the BOOK VALUE of that plant asset is considered and compared to the cash or asset received in exchange to determine the amount of gain or loss.

Example: Plant asset disposed off at $50000. Original Cost of Asset $70000, Accumulated Depreciation till date $21000.

In above example, the Net Book Value is to be first considered, that is $49000 [70000 – 21000]

Disposed off at $50000, Net book Value is $49000. Hence, gain on disposal is $1000.

Original Book Value of $70000 is not considered for determining Gain or Loss.

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