18/07/2023
Fixed assets, also known as property, plant, and equipment, are depreciated over their estimated useful lives. This period is typically based on estimates of the asset's usage, wear and tear, decay or obsolescence, and legal or contractual limits.
When a fixed asset reaches the end of its estimated useful life, it is fully depreciated in the company's books. However, if the asset is still functional and continues to generate economic benefits for the business, it is not immediately written off or disposed of.
Under both IFRS (International Financial Reporting Standards) and U.S. GAAP (Generally Accepted Accounting Principles), once an asset is fully depreciated, no further depreciation expense is recognized. However, the asset remains on the balance sheet at its salvage value or residual value, which is the estimated amount that an entity would currently obtain from the disposal of the asset, after deducting the expected costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Additionally, if the asset's useful life, depreciation method, or residual value is reassessed, the asset can continue to be depreciated. As per IAS 16 (under IFRS), such circumstances may indicate that the residual value or the useful life of an asset may need to be reviewed, and adjustments made accordingly.
Please note, while the asset remains in use, it should continue to be evaluated for impairment under IAS 36 (under IFRS) or ASC 360 (under U.S. GAAP) to ensure that it is not carried on the books at more than its recoverable amount.
It is crucial to maintain up-to-date and accurate asset records, and regular reviews of asset useful lives and residual values are considered good accounting practice. The treatment of these assets should be disclosed in the financial statement notes.
