What Is a Fully Depreciated Asset? 

A fully depreciated asset is a property, plant or piece of equipment (PP&E) which, for accounting purposes, is worth only its 澳洲幸运5官方开奖结果体彩网:salvage value. Whenever an asset is capitalized, its cost is depreciated over several yeꦿars according to a depreciation schedule. Theoret𒆙ically, this provides a more accurate estimate of the true expenses of maintaining the company's operations each year.

Understanding Fully Depreciated Assets

An asset can reach full 澳洲幸运5官方开奖结果体彩网:depreciation when its useful life expires or if an impairment charge is incurred against the original cost, though this is less common. If a company takes a full impairment charge against the asset, the asset immediately becomes fully depreciated, leaving only its salvage value (also known as terminal value or 澳洲幸运5官方开奖结果体彩网:residual value). The depreciation method can take the form of 澳洲幸运5官方开奖结果体彩网:straight-line or accelerated (澳洲幸运5官方开奖结果体彩网:double-declining-balance or sum-of-year), and when accumulated depreciation matches the original cost, the asset is now fully de⭕preciated on the company's books.

In reality, it is difficult to predict the 澳洲幸运5官方开奖结果体彩网:useful life of an asset, so depreciation expenses represent only a rough estimate of the true amount of an asset used up each year. Conservative 澳洲幸运5官方开奖结果体彩网:accounting practices dictate that when in doubt, it is more prudent to use a faster depreciation schedule so that expensᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚes are recognized earlier. In that way, if the asset does not live out the expected life, the com🍎pany does not incur an unexpected accounting loss.

Due to these factors, it is not unusual for a 澳洲幸运5官方开奖结果体彩网:fully depreciated asset to still be in good working order and produce value for the firm. The initial value minuꦏs the residual value is also referred to as the "depreciable base."

Other Considerations

If the asset is still deployed, no more depreciation expense is recorded against it. The 澳洲幸运5官方开奖结果体彩网:balance sheet will still reflect the original cost of the asset and the equivalent amount of accumulated depreciation. However, all else equal, with the asset still in productive use, GAAP operating profits will increase because no more depreciation expense will be recorded. When the fully depreciated asset is eventually disposed of, the accumulated depreciation account is debited and the asset account is credited in the amount o𒆙f its original cost.

Example

Suppose a company acquires a new car so that its salespeople can go around selling the company's products. This car has an initial value of $50,000 and a useful life of ten years. To calculate yearly depreciation for accounting purposes, the owner needs the car's residual value, or what it is worth at the end of the ten years. Assume this value is $5,000, and the company uses the straight-line method of depreciation.

Therefore, the company must subtract the residual value of $5,000 from the $50,000 initial value and divide by the asset's useful life of 10 years to arrive at its yearly depreciation, which is ($50,000-$5,000)/10 = $4,500. At the end of year 10, there is no more depreciation to deduct, and the asset is fully depreciated, worth just its $5,000 salvage value.