Which formula represents gain or loss on disposal?

Which formula represents gain or loss on disposal?

• A. Net disposal proceeds plus carrying amount
• B. Net disposal proceeds minus fair value
• C. Net disposal proceeds minus carrying amount
• D. Carrying amount minus net disposal proceeds

Answer: (C)

When an asset is disposed, you compare what you receive from the sale with what the asset is currently worth on the books. The amount you receive is the net disposal proceeds (sale price less selling costs), and the amount the asset is carrying on the books is its carrying amount (cost less accumulated depreciation and impairment). The gain or loss is the difference between these two: net disposal proceeds minus carrying amount. If this result is positive, you have a gain; if negative, a loss. This is why the correct formula is net disposal proceeds minus carrying amount. The other options either add quantities together or use fair value, which isn’t used to determine disposal gain or loss.

When an asset is disposed, you compare what you receive from the sale with what the asset is currently worth on the books. The amount you receive is the net disposal proceeds (sale price less selling costs), and the amount the asset is carrying on the books is its carrying amount (cost less accumulated depreciation and impairment). The gain or loss is the difference between these two: net disposal proceeds minus carrying amount. If this result is positive, you have a gain; if negative, a loss. This is why the correct formula is net disposal proceeds minus carrying amount. The other options either add quantities together or use fair value, which isn’t used to determine disposal gain or loss.