Question

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale are

a) Lesser than carrying amount

b) Less than current fair value

c) Lesser than cost

d) Greater than carrying amount

e) Greater than cost

Answer 1

Correct answer is option a =  Lesser than carrying amount

 

Explanation:

An asset is depreciated over a period of life based on estimates.

Carrying amount, also known as carrying value, is the cost of an asset less accumulated depreciation.

At the time of  acquisition of an asset, the carrying value of that asset is the original cost of its purchase.

Profit or (loss) on sale of asset =  proceeds from sale - Carrying cost.

Whereas,

Carrying cost = original cost of asset -  Accumulated depreciation

Hence, if there is a loss on sale asset, it means that proceeds from sale is less than carrying amount of asset.

 

Option b is incorrect because fair value is not considered during sale  of asset.

If the proceeds from sale is Greater than carrying amount, then it results profit.

Correct answer is option a =  Lesser than carrying amount