How do you determine the gain or loss on the sale of a long-term asset?

To determine the gain or loss on the sale of a long-term asset, the correct formula is to subtract the asset's book value from the cash proceeds received from the sale. This calculation reflects the financial outcome of selling an asset.

When you sell a long-term asset, the book value represents the asset's value on the company's balance sheet, which is typically the original purchase price less any accumulated depreciation. The cash proceeds are the money received from the sale. By using the formula "Cash Proceeds - Book Value," you effectively measure how much more or less you've gained compared to the asset's recorded value.

If the cash proceeds exceed the book value, the result is a gain, indicating a profitable transaction. Conversely, if the cash proceeds are less than the book value, the result represents a loss, indicating a transaction that did not recover the full value of the asset.

This method aligns with accounting principles designed to reflect economic reality, providing a clear view of the financial impact of the sale.