What is the accounting treatment for an asset that is fully depreciated, but continues to be used in a business?
An asset that is fully depreciated and continues to be used in the business will be reported on the balance sheet at its cost along with its accumulated depreciation. There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset is disposed of through retirement, sale, salvage, etc.
To illustrate this, let's assume that a machine with a cost of $250,000 was expected to have a useful life of five years and no salvage value. The company depreciated the asset at the rate of $50,000 per year for five years. If the machine is used for three more years, the depreciation expense will be $0 in each of those three years. During those three years, the balance sheet will report its cost of $250,000 and its accumulated depreciation of $250,000 for a book value of $0.
Can a fully depreciated asset be revalued?
No. A fully depreciated asset cannot be revalued because of accounting's cost principle, matching principle, and going concern assumption.
For instance, let's assume that a company purchased a building 30 years ago at a cost of $600,000. The company then depreciated the building at a rate of $20,000 per year for 30 years. Today the building continues to be used by the company and it plans to continue using it for many more years. The company's current balance sheet will report the building at its cost of $600,000 minus its accumulated depreciation of $600,000. In other words, the building will be reported at its book value of $0.
The cost principle prevents the company from recording and reporting more than its actual cost of $600,000. The matching principle requires that only the actual cost of $600,000 can be allocated or matched to the years in which the company benefits from the use of the building. Lastly, the company is assumed to be a going concern and therefore it is not liquidating. Hence the amount that the company would receive if it sold the building is not appropriate for its financial statements.
How are fully depreciated assets reported on the balance sheet?
Fully depreciated assets that continue to be used are reported at cost in the Property, Plant and Equipment section of the balance sheet. The accumulated depreciation for these assets is also reported in this section. As a result, the combination of these assets' costs minus their accumulated depreciation will likely be a net amount of zero. This net amount is the carrying amount, carrying value or book value.
The cost and accumulated depreciation will continue to be reported until the company disposes of the assets. The disposal might be the sale or the retirement of the assets.
Fully depreciated assets and their resulting book value of zero reinforces accountants' position that depreciation is a process to allocate assets' costs to expense; it is not a process for valuing assets.
How are fully depreciated assets reported on the balance sheet?
Fully depreciated assets that continue to be used are reported at cost in the Property, Plant and Equipment section of the balance sheet. The accumulated depreciation for these assets is also reported in this section. As a result, the combination of these assets' costs minus their accumulated depreciation will likely be a net amount of zero. This net amount is the carrying amount, carrying value or book value.
The cost and accumulated depreciation will continue to be reported until the company disposes of the assets. The disposal might be the sale or the retirement of the assets.
Fully depreciated assets and their resulting book value of zero reinforces accountants' position that depreciation is a process to allocate assets' costs to expense; it is not a process for valuing assets.
