O Level Accounting (7707)•7707/12/O/N/20
Explanation
Profit or loss on asset disposal Steps:
- Calculate net book value: Original cost 15,000 equals $17,000.
- Compare selling price to net book value: Sold for $14,000.
- Determine profit or loss: 17,000 equals -3,000 loss. Why B is correct:
- Profit or loss on disposal equals selling price minus net book value (cost less accumulated depreciation), per accounting standards. Why the others are wrong:
- A: Subtracts sale price from original cost, ignoring depreciation.
- C: Adds depreciation to sale price, inflating profit unrealistically.
- D: Subtracts sale price from original cost, overstating loss.
Final answer: B
Topic: Accounting for depreciation and disposal of non-current assets
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