Final answer:
A company would only recognize a loss on scrapping an asset without any cash recovery if the asset had a remaining book value. If the asset was fully depreciated to a zero book value, no additional loss would be recorded upon disposal.
Step-by-step explanation:
If a company scraps an asset without any cash recovery, it is not necessarily true that the company recognizes a loss equal to the asset's book value. The recognition of such a loss depends on the remaining book value of the asset at the time of its disposal. When an asset is scrapped, any remaining book value (cost minus accumulated depreciation) would be written off as a loss. However, if the asset was already fully depreciated and its book value was zero, then scrapping the asset would not result in an additional loss as its carrying value on the balance sheet is already zero.
Considering the impact of asset valuation on banks, during the recession of 2007 and 2008, many found that the book values of their assets were significantly higher than their market values, leading to write-downs and losses. This situation is akin to a bank suffering a wave of unexpected defaults, significantly decreasing the value of its assets and potentially leading to a negative net worth.
In summary, a company would recognize a loss on scrapping an asset without cash recovery only to the extent of the asset's remaining book value.