Fully Depreciated Asset
What is a Fully Depreciated Asset?
How Does a Fully Depreciated Asset Work?
Let's assume Company XYZ bought a MegaWidget for $100,000 10 years ago. The MegaWidget depreciates by $10,000 a
Accumulated depreciation = $10,000 ( 1 ) + $10,000 (year 2 ) + $10,000 (year 3 depreciation) + $10,000 (year 4 depreciation) + $10,000 (year 5 depreciation) + $10,000 (year 6 depreciation) + $10,000 (year 7 depreciation) + $10,000 (year 8 depreciation) + $10,000 (year 9 depreciation) + $10,000 (year 10 depreciation) = $100,000.
Company XYZ then record the net book value of the MegaWidget like this:
Net book value = $100,000 purchase price - $100,000 = $0. In other words, the is fully depreciated.
Why Does a Fully Depreciated Asset Matter?
balance sheet, and it is a key component of . is the value at which a company carries an on its balance sheet. It is equal to the cost of the asset minus . When an is fully depreciated, it is worth nothing for purposes, though the might actually have some scrap or minimal resale value. The method a company uses to calculate can influence when an asset becomes fully depreciated.
The disparity highlights one very important aspect of : It does not reflect true losses in the of an asset (or company).