Question

You would record a loss on disposal (instead of gain) if :

A) The fair value exceeds the book value.
B) The fair value is less than the book value.
C) The fair value equals the book value.
D) There is no loss on disposal.

Answer 1

A loss on disposal is recorded when the fair value is less than the book value of an asset being disposed of.

Step-by-step explanation:

When disposing of an asset, a gain or loss may be recorded depending on the fair value and book value of the asset. If the fair value is less than the book value, a loss on disposal would be recorded. This indicates that the asset is being sold for less than its recorded value on the company's books.

For example, if a company has an asset with a book value of $10,000 and it is sold for $8,000, a loss of $2,000 would be recorded.

On the other hand, if the fair value is greater than the book value, a gain on disposal would be recorded. If the fair value is equal to the book value, there would be no gain or loss on disposal.