The accounting for a fully depreciated asset

A fixed asset is fully depreciated when its original recorded cost, less any salvage value, matches its total accumulated depreciation. A fixed asset can also be fully depreciated if an impairment charge is recorded against the original recorded cost, leaving no more than the salvage value of the asset. Thus, full depreciation can occur over time, or all at once through an impairment charge.

If a fixed asset is still in use and is fully depreciated, there is no additional accounting entry at all. The key point is to ensure that no additional depreciation is recorded against the asset. Additional depreciation charges can occur when depreciation is being calculated manually or with an electronic spreadsheet. A commercial fixed asset database will automatically turn off depreciation, as long as the termination date was correctly set in the system. However, an impairment charge must be noted in such a commercial database, or else the system will continue to record depreciation at the original depreciation rate, even when the remaining book value has been reduced or eliminated.

The absence of any further depreciation expense subsequent to the completion of depreciation for an asset will reduce the amount of depreciation expense reported in the income statement, so that non-cash profits will increase by the amount of the depreciation reduction.

The reporting of a fully depreciated asset will be in two places in the balance sheet:

  • Cost. The full acquisition cost of the asset will be listed in the fixed assets line item, within the assets section of the balance sheet.
  • Depreciation. The full amount of accumulated depreciation will be listed in the accumulated depreciation contra asset line item, located just below the fixed asset line item.

It would be incorrect accounting treatment to remove a fixed asset cost and related accumulated depreciation from the accounting records as long as the underlying asset is still being used, for two reasons:

  • Metrics. The presence of such a large amount of accumulated depreciation for an asset should be stated, so that someone analyzing the financial statements can discern that the company tends to retain its fixed assets for a long period of time; this can be an indicator of multiple issues, such as good maintenance or the imminent need to spend cash for replacement assets.
  • Asset recordation. If an asset is on the premises and in use, then it should be recorded. Its deletion would remove the asset from the fixed asset register, so that someone might conduct a fixed asset audit and observe the asset, but not see it in the company's records.

When a fixed asset is eventually disposed of, the event should be recorded by debiting the accumulated depreciation account for the full amount depreciated, crediting the fixed asset account for its full recorded cost, and using a gain or loss account to record any remaining difference.

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