Omission of depreciation increases net book value, reducing disposal gain

Steps:

• Asset bought 1 Jan 2020 for $10,000; correct 2020 depreciation: 10$10,000 = $1,000 (full year charged).
• No depreciation recorded in 2020 due to error, so net book value at 31 Dec 2020: $10,000 (instead of$9,000).
• Sold 1 Jan 2021; no 2021 depreciation under policy (disposal year).
• Disposal gain in 2021: sale price minus $10,000 (error) vs. sale price minus$9,000 (correct), so $1,000 lower gain.

Why B is correct:

• Per accounting standards (e.g., IAS 16), omitting depreciation expense understates it in acquisition year but overstates net book value at disposal, reducing reported profit on sale by the uncharged amount ($1,000).

Why the others are wrong:

• A: Ignores that higher net book value decreases gain on disposal.
• C: Overstates effect; only one year's depreciation ($1,000) omitted, not 15%.
• D: Reverses the impact; error lowers 2021 profit via reduced disposal gain.

Final answer: B