Which Of The Following Situations Will Result In Recognizing A Gain On Sale Of A Plant Asset?

Which Of The Following Situations Will Result In Recognizing A Gain On Sale Of A Plant Asset? A. A fully depreciated asset is sold for $1,000. B. An asset with a book value of $2,000 is sold for $1,500. C. An asset with book value of $2,000 is sold for $2,000. D. A fully depreciated asset is discarded. E. An asset that cost $5,000 with accumulated depreciation of $3,000 is sold for $1,500.
The correct option of this multiple choice question is A as proved below:

Given:

Selling Price (SP) = $1,000,  Book Value (BV) = 0 as Plant Asset (PA) is fully depreciated i.e., its useful life has been expired.

Gain On Sale Of Plant Asset (PA) = Selling Price - Book Value of Plant Asset

Here Book Value of Plant Asset = Cost - Accumulated Depreciation

By putting the values, we have:

Gain On Sale On Plant Asset = $1,000 - 0 = $1,000

The option B is an incorrect choice as it shows Loss on sale of PA as shown below:

Selling Price = $1,500

Book Value of PA = $200

Loss On Sale Of PA = Selling Price - Book Value $1500 - $2000 = -$500

So, there is a loss of $500 as selling price is less than book value of PA.

The option C is also wrong choice here as it shows break-even point at which there is no gain or loss as shown below:

Break-Even Point / No Gain No Loss Situation = SP – BV = $2,000 - $2,000 = 0

The option D is not correct as when the plant asset is discarded, then it means it is wasted and thrown away from the business premises as it has, now assumed, has no market value and since it is not disposed of, so there is no cash proceeds / sale proceeds. As there is no cash proceeds, so there is no question of gain or loss or break-even point.

The option E is also incorrect choice here as it shows loss rather gain on sale of PA as shown below:

Selling Price = $1,500

Book Value = Cost - Accumulated Depreciation = $5,000 - $3,000 = $2,000

Loss on Sale of PA = SP - BV = $1,500 - $2,000 = -$500

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