One of your company’s delivery trucks has become so old, it is no longer worth the money to repair it. If you scrap the truck, what are you doing in terms of recording this in SAP?
Select an answer:
a- You are retiring the asset from your accounting system, while continuing to depreciate the asset.
b- You are retiring the asset for all accounting and depreciation purposes.
c- You are transferring the asset to another part of your business.
d- You are removing the asset from your active fleet of delivery vehicles.
The Correct Answer and Explanation is:
Correct Answer: b – You are retiring the asset for all accounting and depreciation purposes.
Explanation:
In SAP, when a delivery truck or any fixed asset becomes obsolete or no longer economically viable to maintain or repair, the proper accounting treatment is to retire the asset. Retiring an asset means it is permanently removed from both operational use and the financial accounting records, including the cessation of further depreciation.
This action is reflected in SAP using an asset retirement transaction, which ensures the asset is derecognized from the company’s fixed asset register. When an asset is retired due to scrapping (as opposed to being sold or transferred), no revenue is typically generated, and any remaining book value is written off as a loss on disposal.
SAP allows users to execute this through transaction code ABAVN (Asset Retirement by Scrapping), which ensures that:
- The asset is fully retired for financial and depreciation accounting.
- The net book value (NBV), which is the original acquisition cost minus accumulated depreciation, is written off.
- No future depreciation is calculated for this asset.
- The retirement is properly recorded in the General Ledger, maintaining compliance with accounting standards like IFRS or GAAP.
This is different from transferring an asset (choice c), which moves it within the business and retains its accounting value. Also, simply removing an asset from the operational fleet (choice d) without adjusting the accounting records does not meet financial reporting requirements.
Therefore, option b is correct because it aligns with both the operational and financial accounting treatment of a scrapped asset in SAP, ensuring complete and accurate asset lifecycle management.
