Question

What is the loss on disposal of a plant asset that cost $100,000, had accumulated depreciation of $24,000, and was sold for $60,000?

A. $40,000
B. $16,000
C. $76,000
D. $36,000

Answer 1

D. $36,000. The loss on the disposal is calculated as the difference between the book value and the selling price, resulting in a loss of $16,000 in this case.

Step-by-step explanation:

The loss on the disposal of a plant asset is calculated as the difference between the book value of the asset (cost minus accumulated depreciation) and the amount received from the sale. In this case, the plant asset had a cost of $100,000 and accumulated depreciation of $24,000, making the book value
`\( ($100,000 - $24,000) = $76,000 \)`. The asset was sold for $60,000. To calculate the loss, subtract the selling price from the book value
`\( ($76,000 - $60,000) = $16,000 \)`. However, since it's a loss, the final answer is the absolute value of this result, which is
`\( |$16,000| = $16,000 \)`. Therefore, the correct answer is D. $36,000.

In accounting, when disposing of an asset, the loss is incurred when the selling price is less than the book value. The book value represents the net carrying amount of the asset on the company's books. In this scenario, the plant asset had not been fully depreciated, resulting in a loss of $16,000. This loss reflects the reduction in value from the original cost due to depreciation over time. The loss on disposal is an important aspect of financial reporting, as it reflects the economic reality of the asset's worth at the time of sale. Companies recognize such losses in their income statements, impacting their overall financial performance.

In summary, the loss on disposal is calculated by subtracting the selling price from the book value. In this case, the loss on the plant asset disposal is $16,000, and the absolute value is $16,000, leading to a final answer of D. $36,000.