Future Business Leaders of America (FBLA) Accounting Practice Test

What does the increase in equity from selling a plant asset for more than its book value indicate?

1. A gain on the asset

2. A loss on the asset

3. A market devaluation of the asset

4. A stable asset valuation

The correct answer is: A gain on the asset

Selling a plant asset for more than its book value indicates that the company has realized a gain on that asset. The book value represents the value of the asset as recorded in the company's financial statements, which is typically the cost of the asset minus accumulated depreciation. When the sale price exceeds this book value, the difference is recognized as a gain. This gain contributes positively to the company's equity, representing an increase in value that enhances the net worth of the business. In this context, a gain means that the company has successfully turned an asset into cash at a value higher than what was initially recorded on its balance sheet. This situation reflects effective management of assets and can be indicative of prudent investment strategies or market conditions favoring the company’s equipment or property. The other options do not convey the accurate implications of selling an asset above its book value. They either suggest losses, devaluation, or stability, which do not apply when there is a profit realized from the sale of the asset. Therefore, the correct interpretation of the transaction is that it reflects a gain on the asset.