Fixed assets represent items a company will use for several years. Depreciation is the expense that companies report for using the asset. Fully depreciated assets indicate a company used an item until there was no financial value left. Accounting for fully depreciated fixed assets is necessary to properly report the value of these items.
A company should not remove a fully depreciated asset from its balance sheet. The company still owns the item, and needs to report this ownership to stakeholders. Companies can include a financial note or disclosure indicating the full depreciation of the asset. The item needs inclusion on the balance sheet, however, until the company sells it.
Accountants will record depreciation in a contra account. The historical cost of an item remains in the asset account. The asset account has a positive balance. The contra account is an asset account with a negative balance. Taken together, the account will provide a net asset balance. Reporting the information separately provides a clearer financial picture for stakeholders.
To remove assets from a fixed asset list, the company must sell or dispose of the item. Companies will often declare a salvage value for each asset. In some cases, the value can be zero. A company can sell the asset and then remove the item from the company’s asset account. An asset with a zero salvage means the company will most likely trash it, and remove it from the balance sheet.
Companies that experience a loss on the sale of an old asset must report this item against net income. Companies can report this loss separately from their regular net income. This section reports the loss on disposal of assets, or loss on discontinued operations. This presents information so stakeholders know the item is extraordinary and will not likely occur in the future.
