How do I write off a fixed asset?
Sunday, November 7, 2010 at 1:32PM A fixed asset is written off when it is determined that there is no further use for the asset, or if the asset is sold off or otherwise disposed of. A write off involves removing all traces of the fixed asset from the balance sheet, so that the fixed asset account and accumulated depreciation account are reduced.
There are two scenarios under which you may write off a fixed asset. The first situation arises when you are eliminating a fixed asset without receiving any payment in return.
This is a common situation when a fixed asset is being scrapped because it is obsolete or no longer in use, and there is no resale market for it. In this case, you reverse any accumulated depreciation and reverse the original asset cost. If the asset is fully depreciated, then that is the extent of your entry.
For example, ABC Corporation buys a machine for $100,000 and recognizes $10,000 of depreciation per year over the following ten years. At that time, the machine is not only fully depreciated, but also ready for the scrap heap. ABC gives away the machine for free, and records the following entry.
| Debit | Credit | |
| Accumulated depreciation | 100,000 | |
| Machine asset | 100,000 |
A variation on this first situation is to write off a fixed asset that has not yet been completely depreciated. In this situation, write off the remaining undepreciated amount of the asset to a loss account. To use the same example, ABC Corporation gives away the machine after eight years, when it has not yet depreciated $20,000 of the asset's original $100,000 cost. In this case, ABC records the following entry:
| Debit | Credit | |
| Loss on asset disposal | 20,000 | |
| Accumulated depreciation | 80,000 | |
| Machine asset | 100,000 |
The second scenario arises when you sell an asset, so that you receive cash (or some other asset) in exchange for the fixed asset you are selling. Depending upon the price paid and the remaining amount of depreciation that has not yet been charged to expense, this can result in either a gain or a loss on sale of the asset.
For example, ABC Corporation still disposes of its $100,000 machine, but does so after seven years, and sells it for $35,000 in cash. In this case, it has already recorded $70,000 of depreciation expense. The entry is:
| Debit | Credit | |
| Cash | 35,000 | |
| Accumulated depreciation | 70,000 | |
| Gain on asset disposal | 5,000 | |
| Machine asset | 100,000 |
What if ABC Corporation had sold the machine for $25,000 instead of $35,000? Then there would be a loss of $5,000 on the sale. The entry would be:
| Debit | Credit | |
| Cash | 25,000 | |
| Accumulated depreciation | 70,000 | |
| Loss on asset disposal | 5,000 | |
| Machine asset | 100,000 |
A fixed asset write off transaction should only be recorded after written authorization concerning the targeted asset has been secured. This approval should come from the manager responsible for the asset, and sometimes also the CFO.
Related Topics
Fixed asset disposal accounting
What is salvage value?
When do I derecognize an asset?
When do I eliminate accumulated depreciation?
Reader Comments (21)
In accounting terminology, there is no such thing as write off of Fixed Assets. Fixed Assets are either sold, traded or given away, which is a disposal of fixed assets. Or they are derecognized as being useless/scrapped or damaged beyond repair. In both situations, these items are removed from the Balance Sheet (Historical Cost & Accumulated Depreciation). There may be a loss or gain.
Write off in accounting refers to the removal of an asset value to current period expenses (Admin., Marketing, Other, ectra.). If a Fixed Asset fails to qualify in value under an impairment review, then the incorrect difference in value may be written off to current period expense. But, the asset stays on the Balance Sheet as long as it is in use and bringing economic returns to the entity. Regardless of the Book Value. This is why I disagree with the terminology of write off, simply because that accounting terminology implies and in actual practice, removal of the historical cost from the Balance Sheet.
Writing off fixed assets is it right according to accounting standard 10.
When a fully depreciated asset is disposed because of being obsolete is there a record of it within cash flows since no cash was transferred? Isn't this just an item of note in the financials?
When you dispose of a fully depreciated asset, there are no cash flows, so it will not appear in the statement of cash flows. It may not even be included in the accompanying disclosures to the financial statements, if the original cost of the asset was immaterial.
That's what I thought. Thanks Steven!
The idea is that depreciation expense is calculated and stored in a depreciation transaction table. If the organisation desires, these transactions will then be able to be posted to the G/L into the accounts specified by the Asset Type.
When an assets if fully depreciated how do you take it off the balance sheet. and if a vehicle was used in a trade how do you get rid of the one that was traded off the books
How do you account for fixed assets that are scrapped from the ledgers where there is a difference between the historical cost and the accumulated depreciation.
If there is a difference between the historical cost and the accumulated depreciation when you scrap a fixed asset, you write off the difference to a loss on asset disposal account.
What if the asset disposed which has a net book value left was traded-in for a new asset? How should I record the trade-in amount? Option 1: Record the new asset value as net of the trade-in amount and post the NBV of old asset as loss on disposal. Option 2: Record new asset at gross without the trade-in amount and record loss on disposal net of trade-in amount.
When you trade in an asset for another asset, you should recognize a gain or loss on the difference between the recorded cost of the asset transferred to the other party and the recorded cost of the asset you have acquired.
I have an company vehicle that has been fully depreciated and was traded in for 2K. We received this as a discount on the purchase of a new asset. Would I record the 2K as a gain or just reduce the cost of the new vehicle?
The 2K trade-in is not a gain. You would account for the discount as a reduction in the cost of the new vehicle.
Should this write off of asset appear in the cashflow?
It would appear as an adjustment to net income in the cash flows from operating activities section (assuming you are using the indirect method).
When a vendor paid you back for the cost of the asset as a result of warranty guaranteeing replacement or repairs, however both are not feasible so they refunded the cost of the machine for $599.00, how is this refund treated in the books?
Thanks
Alice
Since the asset is presumably no longer in use, treat it as a sale of the asset, with the proceeds from the refund treated as though it were a payment for the asset by a third party. This means a debit to cash for the refund, a credit to the fixed asset account for the original purchase price, and a debit to accumulated depreciation. There may also be a gain or loss, depending on whether you have already depreciated the asset at all, and the exact amount paid by the vendor.
If the net book value is zero and subsequently transfer to fellow subsidiaries at zero value, what is the correct accounting treatment? Just reverse the assets from the balance sheet? How about the accounting treatment for the receiving company?
You would write the asset off on the books of the original company. The asset is then moved to the records of the receiving entity at zero cost.
My company has a vehicle that is a total loss due to an accident and was never depreciated. Also, the company bought a new vehicle. Could you please let me know what is accounting treatment for this situation?
The loss on the vehicle is a separate transaction from the purchase of the replacement vehicle. Charge off the entire book value of the destroyed vehicle as a loss (assuming that it was originally recorded as an asset). Then record the replacement as a fixed asset, on the assumption that the purchase price is greater than your capitalization limit; if not, charge it to expense.