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 salvage value. Whenever an asset is capitalized, its cost is depreciated over several years according to a depreciation schedule. Theoretically, this provides a more accurate estimate of the true expenses of maintaining the company's operations each year.

BREAKING DOWN 'Fully Depreciated Asset'

An asset can reach full 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. The depreciation method can take the form of straight-line or accelerated (double-declining-balance or sum-of-year), and when accumulated depreciation matches the original cost, the asset is now fully depreciated on the company's books.

In reality, it is difficult to predict the 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 accounting practices dictate that when in doubt, it is more prudent to use a faster depreciation schedule so that expenses are recognized earlier. In that way, if the asset does not live out the expected life, the company does not incur an unexpected accounting loss. Due to these factors, it is not unusual for a fully depreciated asset to still be in good working order and producing value for the firm.

If the asset is still deployed, no more depreciation expense is recorded against it. The 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 of its original cost.

  1. Accumulated Depreciation

    The cumulative depreciation of an asset up to a single point ...
  2. Depreciated Cost

    Depreciated cost is the original cost of a fixed asset less accumulated ...
  3. Salvage Value

    The estimated value that an asset will realize upon its sale ...
  4. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  5. Depreciable Property

    Depreciable property is any type of asset that is eligible for ...
  6. Double Declining Balance Depreciation ...

    One of two common methods a business uses to account for the ...
Related Articles
  1. Investing

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Investing

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  3. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  4. Investing

    How rental property depreciation works

    It's a bit tricky, but it's a valuable tool to make your investment pay off.
  5. Investing

    How Depreciation Works on a Rental Property

    One of the advantages of owning rental real estate is the depreciation tax deduction.
  6. Taxes

    Filling out Form 4562, step-by-step

    Step-by-step, how to fill out the depreciation and amortization form for your business tax return.
  7. Investing


    Otherwise known as Earnings Before Interest, Taxes, Depreciation and Amortization. Learn more about this indicator of a company's financial performance.
  8. Personal Finance

    Cars That Depreciate The Least

    Here are some of the top vehicles to buy if you're looking to keep the residual value of the vehicle high after a number of years.
  9. Personal Finance

    Consumer Products That Depreciate The Most (And Least)

    Your new car may not hold its value as well as that old collectible toy you kept in perfect condition. Find out which purchases will still be worth something in the years to come.
  1. What is the relationship between accumulated depreciation and depreciation expense?

    Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
  2. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
  3. Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account ... Read Answer >>
  4. What happens to accumulated depreciation when you sell an asset?

    Learn what happens to a company's accumulated depreciation when it sells an asset. Understand why accumulated depreciation ... Read Answer >>
  5. What would cause a decrease in accumulated depreciation?

    Understand what causes a decrease in a company's accumulated depreciation. Learn why a company's accumulated depreciation ... Read Answer >>
  6. When should I use depreciation expense instead of accumulated depreciation?

    Distinguish differences between depreciation expense, which is reported on the income statement, and accumulated depreciation ... Read Answer >>
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  3. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  6. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
Trading Center