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Disposal - TERMS A complete understanding of terminology is...

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TERMS: A complete understanding of terminology is critical to your understanding! Cost equals the fair market value of what was given up to acquire an asset; usually the cash paid. Depreciation expense is the amount of the cost of the asset that would be recorded as expense for one time period (usually one year). A partial year’s depreciation could also be recorded. Accumulated depreciation is the total depreciation recorded since the asset was acquired. This is usually several time periods, and might be other than full time periods. For example, one could have an asset for 3 ½ years and, therefore, would record 3 ½ years of depreciation. Accumulated depreciation would be the total of the 3½ years depreciation. Book value (basis) equals cost minus accumulated depreciation. Gains would occur when the sales price is greater than the book value. Losses would occur when the sales price is less than the book value.
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