Fully Depreciated Asset
What Is a Fully Depreciated Asset?
A fully depreciated asset is a property, plant or piece of equipment (PP&E) which, for the end goal of accounting, is worth just its salvage value. Whenever an asset is capitalized, its cost is depreciated north of several years as per a depreciation schedule. Hypothetically, this gives a more accurate estimate of the true expenses of keeping up with the company's operations every year.
Seeing Fully Depreciated Assets
An asset can arrive at full depreciation when its helpful life lapses or on the other hand assuming an impairment charge is incurred against the original cost, however this is more uncommon. In the event that a company takes a full impairment charge against the asset, the asset quickly turns out to be fully depreciated, leaving just its salvage value (otherwise called terminal value or residual value). The depreciation method can appear as straight-line or accelerated ([double-declining-balance](/twofold declining-balance-depreciation-method) or amount of-year), and when accumulated depreciation matches the original cost, the asset is currently fully depreciated on the company's books.
In reality, it is hard to foresee the useful life of an asset, so depreciation expenses address just a good guess of the true amount of an asset spent every year. Conservative accounting practices direct that if all else fails, it is more prudent to utilize a quicker depreciation schedule so that expenses are recognized before. In like that, on the off chance that the asset doesn't carry on with out the expected life, the company doesn't bring about an unexpected accounting loss. Due to these factors, it isn't unusual for a fully depreciated asset to in any case be ready to go and delivering value for the firm. The initial value minus the residual value is likewise alluded to as the "depreciable base."
Different Considerations
Assuming the asset is as yet conveyed, no more depreciation expense is recorded against it. The balance sheet will in any case mirror the original cost of the asset and the equivalent amount of accumulated depreciation. In any case, all else equivalent, with the asset still in useful use, GAAP operating profits will increase in light of the fact that no more depreciation expense will be recorded. At the point when the fully depreciated asset is in the long run discarded, the accumulated depreciation account is charged and the asset account is credited in the amount of its original cost.
Model
Assume a company procures another vehicle so that its sales reps can circumvent selling the company's products. This vehicle has an initial value of $50,000 and a helpful life of a decade. To ascertain yearly depreciation for accounting, the owner necessities the vehicle's residual value, or what it is worth toward the finish of the decade. Accept this value is $5,000, and the company utilizes the straight-line method of depreciation.
In this way, the company must take away the residual value of $5,000 from the $50,000 initial value and gap by the asset's helpful life of 10 years to show up at its yearly depreciation, which is ($50,000-$5,000)/10 = $4,500. Toward the finish of year 10, there is no more depreciation to deduct, and the asset is fully depreciated, worth just its $5,000 salvage value.
Features
- Salvage value is the book value of an asset after all depreciation has been fully expensed.
- A fully depreciated asset is one which has encountered its full helpful life and its excess value is just its salvage value.
- A fully depreciated asset on a firm's balance sheet will stay at its salvage value every year after its helpful life except if it is discarded.
