Journal entry for disposal of asset fully depreciated

Introduction

Sometimes, we may need to dispose of the asset that is fully depreciated and is no longer useful to our business. In this case, we need to make the journal entry for disposal of the asset that is fully depreciated in order to remove both its cost and accumulated depreciation from the balance sheet.

Disposal of the asset that is fully depreciated usually results in no gain or loss from the disposal transaction. This also applies to the fully depreciated fixed asset that still has some residual value at the end of its useful life.

In accounting, if the fully depreciated fixed asset still has some uses in business, we usually just stop the depreciation when its net book value is zero or reach its residual value (if it has the residual value at the end of its useful life). In short, we usually don’t remove the fixed asset from the balance sheet when it is still in use even though its net book value is zero.

Journal entry for disposal of asset fully depreciated

Fully depreciated asset without residual value

We usually make the disposal of the fixed asset that is fully depreciated by completely discarding it when it has no residual value at the end of its useful life. In this case, it is simply the removal of such fixed asset from the balance sheet together with its associated account, the accumulated depreciation.

Likewise, we can make the journal entry for disposal of asset fully depreciated by debiting the accumulated depreciation account and crediting the fixed asset account.

Account	Debit	Credit
Accumulated depreciation	XXXX
Fixed asset		XXXX

This journal entry is made to remove the fixed asset from the balance sheet when it is fully depreciated. This is usually done when we no longer have a use for it in the business. Additionally, we simply discard the fully depreciated asset in this journal entry, so no sale transaction is involved here.

Fully depreciated asset with residual value

Residual value is an estimated value (after deducting the disposal cost, if any) that an asset is worth at the end of its useful life. Hence, the disposal of the fully depreciated asset with the residual value is usually done by selling it off with its residual value.

In this case, we can make the journal entry for disposal of the fully depreciated asset by selling it off with the residual value by debiting the cash account and accumulated depreciation account and crediting the fixed asset account.

Account	Debit	Credit
Cash	XXXX
Accumulated depreciation	XXXX
Fixed asset		XXXX

Example for disposal of fully depreciated asset

For example, on December 31, we dispose of $10,000 of the office equipment that has been fully depreciated for it no longer has a use in our business. We dispose of this equipment by discarding it completely as it cannot be sold and it has no residual value at the end of its useful life.

In this case, we can make the journal entry for the disposal of $10,000 equipment that has been fully depreciated by debiting this amount to the accumulated depreciation account of the equipment and crediting the same amount to the equipment account.

Account	Debit	Credit
Accumulated depreciation – equipment	10,000
Equipment		10,000

This journal entry is made to remove the $10,000 equipment that has been fully depreciated and is no longer useful for our business as of December 31. Likewise, there is no impact on the total assets of the balance sheet as the net book value of the fully depreciated equipment here is zero.

Example 2:

For example, on December 31, we dispose of 10 office computers that have reached their useful life of 3 years. Each computer has the cost of $1,700 on the balance sheet, in which its residual value has been estimated to be $200 at the start of the depreciation.

Hence, as of December 31, each computer has been fully depreciated to its residual value and has the accumulated depreciation of $1,500 on the balance sheet. And we dispose of these 10 computers by selling them off for $2,000 of cash on December 31. (Assuming there is no disposal cost in this transaction)

In this case, we can make the journal entry for disposal of these 10 computers by selling them off as below:

Account	Debit	Credit
Cash	2,000
Accumulated depreciation – computers	15,000
Computers		17,000