Practice question · Multiple choice
Net book value is cost minus accumulated depreciation, and net realisable value is what the asset would fetch. Why are these routinely different?
Hints
- Ask where each number comes from.
- Is a depreciation schedule a prediction of resale price?
Show the answer
C. Because NBV allocates cost and NRV estimates the market
Why
Depreciation allocates cost; it does not appraise. That is why impairment testing exists, when NRV falls decisively below NBV, the allocation has stopped describing anything real.
Practise Accounting for Assets
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More questions on Accounting for Assets
- Under the conservatism principle, gains should be anticipated and recognised early.
- Complete the depreciation formula.
- The current/non-current split turns on one year, which seems arbitrary. What does the boundary actually serve?
- Match each depreciation method to its pattern.
- A fully depreciated machine still produces daily. What does its zero book value actually mean?
- Which are intangible assets?