Question

If a company’s fully depreciated asset that had not salvage value was scrapped but not removed from the accounting records, what would be the effect on the company’s financial statements?

A. The asset account and the accumulated depreciation account would be overstated by the same amount.

B. There would be no effect on the net asset book value.

c. Neither a nor b is correct.

d. Both a and b are correct.

Answer 1

The correct answer will be option (d) Both a and b are correct. It is because as the asset is fully depreciated so the whole amount of the asset will be in the accumulated depreciation account and the asset account will also contain it and so both the asset account and the accumulated depreciation account would be overstated by the same amount. The net asset book value is calculated as the original cost of an asset minus accumulated depreciation. As the accumulated depreciation account contains the same value as that of original cost of an asset. So, there will be no effect as net asset book value would be nil. The other options (a) and (b) are both correct individually so both options cannot be selected and so option (d) is correct while option (c) is not correct because both (a) and (b) are correct.