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.

If you're studying accounting, one common exam question is identifying when a gain is recognized on the sale of a plant asset. Understanding the relationship between book value and selling price makes answering these questions much easier.

Question

Which of the following situations will result in recognizing a gain on the 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 a 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.

Correct Answer: A. A Fully Depreciated Asset Is Sold for $1,000

A gain on the sale of a plant asset occurs when the selling price exceeds the asset's book value.

Formula

Book Value = Cost − Accumulated Depreciation

Gain (or Loss) = Selling Price − Book Value

Since a fully depreciated asset has accumulated depreciation equal to its original cost, its book value is $0.

Calculation

  • Selling Price = $1,000

  • Book Value = $0

Gain = $1,000 − $0 = $1,000

Because the asset has no remaining book value and is sold for $1,000, the entire amount received is recognized as a gain on disposal.

Why the Other Options Are Incorrect

Option B: Asset Sold Below Book Value

  • Selling Price = $1,500

  • Book Value = $2,000

Gain (Loss) = $1,500 − $2,000 = −$500

Since the selling price is less than the book value, the business recognizes a loss of $500, not a gain.

Option C: Asset Sold at Book Value

  • Selling Price = $2,000

  • Book Value = $2,000

Gain (Loss) = $2,000 − $2,000 = $0

Because the selling price equals the book value, there is no gain and no loss. This is often referred to as selling the asset at book value.

Option D: Fully Depreciated Asset Is Discarded

When a fully depreciated asset is discarded without receiving any proceeds:

  • Selling Price = $0

  • Book Value = $0

No gain or loss is recognized because the business receives no consideration and the asset has no remaining book value.

Option E: Asset Sold for Less Than Book Value

First, calculate the book value.

Book Value = Cost − Accumulated Depreciation

= $5,000 − $3,000 = $2,000

Now calculate the gain or loss.

  • Selling Price = $1,500

  • Book Value = $2,000

Gain (Loss) = $1,500 − $2,000 = −$500

The result is a $500 loss, so this option does not represent a gain on the sale of a plant asset.

Summary Table

Option   Book Value     Selling Price
           Result

A$0$1,000         $1,000 Gain ✅

B$2,000$1,500          $500 Loss

C
$2,000

$2,000

       No Gain, No Loss
D$0$0           
       No Gain, No Loss

E$2,000$1,500           $500 Loss

Key Concept to Remember

Whenever you are asked to determine whether a sale results in a gain or loss, compare the selling price with the book value:

  • Selling Price > Book Value = Gain

  • Selling Price < Book Value = Loss

  • Selling Price = Book Value = No Gain or Loss

This simple rule can help you solve most plant asset disposal questions quickly in accounting exams.

Final Answer

Option A is the correct answer because the plant asset is fully depreciated (book value of $0) and is sold for $1,000, resulting in a recognized gain of $1,000.

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