Misrecording asset disposal as sales revenue

Steps:

• Correct entry for fully depreciated asset sale: Debit bank for proceeds, debit accumulated depreciation for original cost, credit asset for original cost, credit gain on disposal for proceeds.
• Actual entry: Debit bank for proceeds, credit sales for proceeds.
• This fails to remove the asset and accumulated depreciation from books, overstating non-current assets (net effect zero, but gross overstated).
• It also credits sales instead of gain, overstating sales revenue while understating gain on disposal.

Why A is correct:

• Option A (1 and 3) matches the double effect: non-current assets overstated (1) due to non-derecognition, and sales revenue overstated (3) from misclassification per accounting standards (IAS 16).

Why the others are wrong:

• B includes 4 (e.g., expenses unaffected, no over/ understatement here).
• C includes 2 (e.g., liabilities unchanged by this entry).
• D pairs 2 and 4 (both irrelevant to the error's balance sheet and income impacts).

Final answer: A