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.
The accounting for a fully depreciated asset is to continue reporting its cost and accumulated depreciation on the balance sheet. No additional depreciation is required for the asset. No further accounting is required until the asset is dispositioned, such as by selling or scrapping it. No impairment analysis can be conducted on it, since it no longer has a carrying amount that can be reduced any further.
Once a fixed asset has been fully depreciated, 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:
The net amount of this presentation will sum to zero.
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:
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.