Future Business Leaders of America (FBLA) Accounting Practice Test

What does a "gain on plant assets" signify?

1. Revenue from depreciating an asset

2. Revenue from selling an asset for more than its book value

3. An increase in the value of plant assets

4. A loss incurred from selling a plant asset

The correct answer is: Revenue from selling an asset for more than its book value

A "gain on plant assets" signifies revenue generated from selling an asset for more than its book value. This scenario occurs when the selling price of the asset exceeds its carrying amount on the balance sheet. The difference between the sale proceeds and the asset's carrying value is recognized as a gain, reflecting a positive impact on the company’s earnings. For instance, if a piece of machinery was recorded in the books at $10,000 (its book value) and sold for $15,000, the company would realize a gain of $5,000. This gain is important because it demonstrates effective asset management and can enhance a company’s financial performance and reports. Understanding this concept is crucial for accounting and financial reporting, as it affects net income and how investors perceive a company’s operational efficiency.