If no depreciation expense is taken in the year of an asset's disposal, any gain recorded on the asset's disposal will be overstated.

Question

Quizplus · Accepted Answer

Depreciation expense reduces the book value of an asset, so if no depreciation is taken in the year of disposal, the book value remains higher. When the asset is sold, the difference between the sale price and this inflated book value (which should have been lower if depreciation were accounted for) results in an overstated gain.

If No Depreciation Expense Is Taken in the Year of an Asset's