Final answer:
The argument for the use of net book value rather than gross cost is that it is consistent with how assets are reported on the balance sheet, as it takes into account depreciation and reflects the asset's current value.
Step-by-step explanation:
The question asks which of the following is an argument for the use of net book value rather than gross cost:
- It is consistent with how assets are reported on the balance sheet.
- It eliminates the depreciation method as a factor in ROI calculations.
- It encourages the replacement of old, worn-out equipment.
- All of the above.
The correct answer is A. It is consistent with how assets are reported on the balance sheet. The net book value of an asset takes into account the cost of the asset minus any accumulated depreciation. This reflects the current value of the asset after its use over time, which aligns with how assets are presented on the balance sheet. A bank's balance sheet, for example, lists assets (like cash and loans) and liabilities (such as deposits), with the difference between total assets and total liabilities representing the net worth. Since the net book value gives the current value of the asset, it is deemed preferable for reflecting the actual value of a bank's assets on its balance sheet.