What happens to the net book value of the asset in one year when depreciation expense is recorded?

What happens to the net book value of the asset in one year when depreciation expense is recorded?

• A. It decreases by the depreciation amount
• B. It increases by the depreciation amount
• C. It remains the same
• D. It becomes negative

Answer: (A)

Net book value is the asset’s cost minus accumulated depreciation. When depreciation for the year is recorded, you increase accumulated depreciation by that amount (credit it). Since NBV = cost − accumulated depreciation, adding to accumulated depreciation directly reduces the NBV by the same depreciation amount. Depreciation is a non-cash expense, and it lowers the carrying value of the asset on the balance sheet. It wouldn’t increase NBV, stay unchanged, or automatically go negative from depreciation alone (it would only approach zero as depreciation accumulates).

Net book value is the asset’s cost minus accumulated depreciation. When depreciation for the year is recorded, you increase accumulated depreciation by that amount (credit it). Since NBV = cost − accumulated depreciation, adding to accumulated depreciation directly reduces the NBV by the same depreciation amount. Depreciation is a non-cash expense, and it lowers the carrying value of the asset on the balance sheet. It wouldn’t increase NBV, stay unchanged, or automatically go negative from depreciation alone (it would only approach zero as depreciation accumulates).