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Question:

Assume U.S. GAAP applies. A company’s gross fixed assets increased from the previous year to this year, while the amount of accumulated depreciation shown on its balance sheet decreased from the previous year to the current year. Which of the following is most likely?

A There has been a purchase and sale of long‐lived assets over the year.
Explaination

The increase in gross fixed assets (historical cost) over the year indicates that the company has purchased long‐lived assets during the year. Note that U.S. GAAP does not allow revaluation of fixed assets. Despite the asset acquisition, if accumulated depreciation has fallen over the year, the company has sold a long‐lived asset as well.