Future Business Leaders of America (FBLA) Accounting Practice Test

What is the term for the loss that occurs when a plant asset is sold for less than its book value?

1. Amortization Loss

2. Asset Depreciation

3. Capital Gain

4. Asset Loss

The correct answer is: Asset Loss

The term for the loss that occurs when a plant asset is sold for less than its book value is referred to as an Asset Loss. This situation arises when the carrying amount of an asset on the balance sheet exceeds the cash or other consideration received upon its sale. When a business sells an asset, it compares the sale price with the asset's book value, which is the original cost minus any accumulated depreciation or impairment. If the selling price is lower than this book value, the difference represents a financial loss, hence the designation of Asset Loss. Recognizing this loss is important for accurately reporting financial performance, as it affects the company's income statement and ultimately its net income. This concept is crucial for understanding how asset management and disposal can impact the overall financial health of a business.