Question

When an entity disposes its asset

		Gains or losses indicate whether the entity got a good or bad deal on the sale.
		The entity can achieve immediate income benefits that give rise to the possibility that such sales are timed to achieve income goals.
		A gain on the disposal of a depreciated asset implies that depreciation expense was too low in prior periods.
		Gains and losses from such sales are typically reported in the operating section of the income statement

Answer 1

Answer: - Gains or losses indicate whether the entity got a good or bad deal on the sale. - This statement is correct.

Reasons: -

The entity can achieve immediate income benefits that give rise to the possibility that such sales are timed to achieve income goals. - This statement is not correct. Assets are purchased with motive of holding them to make future benefits by using them and not by selling them. Further assets lose value on usage by business. Thus, it is not practically possible to time sales and make profit.

A gain on the disposal of a depreciated asset implies that depreciation expense was too low in prior periods. - This statement is not correct. Depreciation methods are chosen with the motive of matching principle. That is to charge expense on the capitalised asset value according to value received from using the machine. So, expense on depreciation is dependent on the method of depreciation used.

Gains and losses from such sales are typically reported in the operating section of the income statement. - This statement is not correct. Operating incomes, are earnings from the core operation of the business. Sale of machinery is a non-operating activity, and thus will not be reported in operating income statement.