Which of the following statements regarding discarding fixed assets is not true? a. If a fixed asset is no longer used and has no residual value, it should be written off. b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold. c. If a fixed asset is no longer used and has no residual value, it is discarded. d. Recorded depreciation should be brought up to date before removing the asset from the accounting records.
The correct answer and explanation is:
Correct Answer: b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold.
Explanation (300 words):
When discarding a fixed asset, it’s important to follow proper accounting procedures to ensure that the asset is correctly removed from the financial statements. The process typically involves ensuring the asset is fully depreciated, recognizing any potential loss, and updating all records.
Let’s analyze each option:
a. If a fixed asset is no longer used and has no residual value, it should be written off.
✅ True. When an asset is no longer in use and holds no residual value (salvage value), it should be written off from the books. This means removing both the asset’s cost and its accumulated depreciation from the ledger.
b. Full depreciation should be recorded and no loss recognized with an asset that is discarded rather than sold.
❌ Not true. This is the incorrect statement. Even if an asset is fully depreciated, a loss can still be recognized. For example, if the asset is discarded before it has reached the end of its useful life, or if it had some residual book value, then the remaining balance must be recognized as a loss. Moreover, just because the asset is discarded doesn’t automatically exempt it from a loss if value remains on the books.
c. If a fixed asset is no longer used and has no residual value, it is discarded.
✅ True. Discarding is the proper treatment for assets that are no longer in service and lack residual value.
d. Recorded depreciation should be brought up to date before removing the asset from the accounting records.
✅ True. Before discarding any asset, the accumulated depreciation must reflect all depreciation up to the point of disposal. This ensures accurate financial reporting.
Summary:
Statement b is incorrect because an asset that is discarded can still result in a loss, depending on its book value at the time of disposal.