When selling property, plant, and equipment for cash:
A) The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
B) The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
C) The seller recognizes losses, but not gains.
D) None of these answer choices are correct.

Question

Quizplus · Accepted Answer

The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold. This is because the book value represents the original cost of the asset minus any accumulated depreciation. If the cash received is more than the book value, then the seller recognizes a gain. If the cash received is less than the book value, then the seller recognizes a loss. The fair value of the asset sold is not used in calculating the gain or loss.

When Selling Property, Plant, and Equipment for Cash