How does accumulated depreciation affect the asset's net book value?

How does accumulated depreciation affect the asset's net book value?

• A. It decreases net book value
• B. It increases net book value
• C. It has no effect
• D. It increases asset cost

Answer: (A)

Net book value is the amount an asset is carried at on the balance sheet, which is calculated as the asset’s cost minus accumulated depreciation. As depreciation is recorded over time, the accumulated depreciation balance grows, so the difference between cost and accumulated depreciation shrinks. In other words, more depreciation means a lower net book value. The asset’s original cost doesn’t change with depreciation, so accumulated depreciation does not increase asset cost. Therefore, this concept shows why accumulated depreciation reduces net book value.

Net book value is the amount an asset is carried at on the balance sheet, which is calculated as the asset’s cost minus accumulated depreciation. As depreciation is recorded over time, the accumulated depreciation balance grows, so the difference between cost and accumulated depreciation shrinks. In other words, more depreciation means a lower net book value. The asset’s original cost doesn’t change with depreciation, so accumulated depreciation does not increase asset cost. Therefore, this concept shows why accumulated depreciation reduces net book value.