Question

If there is a loss on the disposal of a depreciable asset:

A. in retrospect, the life over which the asset was depreciated was too short.
B. the net book value of the asset was negative.
C. no cash was received in the disposal transaction.
D. in retrospect, the depreciation expense recognized over the asset's life was too low.Correct

Answer 1

A loss on the disposal of a depreciable asset can occur if the depreciation expense recognized over the asset's life is too low.

Step-by-step explanation:

If there is a loss on the disposal of a depreciable asset, it means that the asset was sold for less than its net book value. This could happen for several reasons, such as changes in market conditions or technological advancements making the asset obsolete.

The correct answer to the question is D. In retrospect, the depreciation expense recognized over the asset's life was too low. This means that the asset was not being depreciated adequately over its useful life.

For example, let's say a company purchased a machine for $10,000 and estimated its useful life to be 10 years with no residual value. If the company depreciated the machine using straight-line depreciation and recognized $1,000 of depreciation expense each year, but then sold the machine after 5 years for $4,000, there would be a loss on the disposal of the asset. In this case, the company should have recognized higher depreciation expense each year to properly account for the decline in the asset's value over time.