What is the main effect of disposing of an asset?

The main effect of disposing of an asset is that it decreases the total number of assets registered in Xero. When an asset is disposed of, whether through sale, scrapping, or any other form of disposal, it is removed from the company's asset register. This action reflects the actual state of the company's assets, ensuring that the financial statements and reports accurately represent the resources available to the business.

Other options may touch on related concepts but do not capture the primary consequence of asset disposal. For example, removing associated purchase transactions may seem relevant, but this is not the case; the historical purchase records typically remain for reference and accounting accuracy. Additionally, updating the market value of the asset isn’t a direct result of disposal as the disposal process is more about taking it off the balance sheet rather than adjusting its value. Lastly, transferring to a different account does not directly align with what is meant by asset disposal, which focuses on permanently removing the asset from the financial records. Thus, the reduction of total assets on the balance sheet is the central outcome of this action.