SAP Financial Accounting (SAP FI) Practice Exam

Which of the following is NOT a result of asset retirements?

1. Reduction of total asset value

2. Increase in accumulated depreciation

3. Creation of a capital gain

4. Permanent withdrawal from assets

The correct answer is: Creation of a capital gain

When assets are retired, several financial effects occur which are crucial to understand in SAP Financial Accounting. The choice indicating the creation of a capital gain is not a result of asset retirements because, generally, a capital gain occurs when an asset is sold for more than its carrying amount. In the context of asset retirement, assets are typically disposed of or removed from the books either by sale, destruction, or abandonment without cash inflow reflecting above their book values, leading instead to losses or simply adjustments. The other outcomes of asset retirements are indeed accurate. Retiring an asset results in a reduction of the total asset value on the balance sheet, as the asset is no longer accounted for. This contributes to a decrease in the asset side of the financial statements. Additionally, retiring an asset leads to an increase in accumulated depreciation because the asset's accumulated depreciation up to the point of retirement must be recorded to reflect the total depreciation taken over its useful life. Finally, asset retirement signifies a permanent withdrawal from assets, marking the asset as no longer part of the operational resources or balance sheet.