When updating an entity’s depreciation schedule, it is obvious that new assets that have been purchased or acquired during the year need to be added, but sometimes it is difficult to know which assets need to be disposed of and when. In this blog, you’ll learn about four situations when you should dispose of an asset.
The asset is no longer in use
Assets are depreciated over their estimated useful life, which means that if the estimate is reasonable and nothing unusual happens to shorten or lengthen its useful life, the asset is fully depreciated around the time the company naturally stops using the asset. Sometimes an asset will no longer be in use, but is still sitting around collecting dust. In this case, it’s best to dispose of the asset physically, and, remove the asset from the depreciation schedule and the books.
The asset was sold
Regardless of why an asset was sold, once it’s off the property it should also be off your books and depreciation schedule. The asset should be removed as of the date of sale, and you may need to recognize a gain or loss on your books depending on the asset’s remaining book value at the date of sale and the sale price.
The asset was stolen
We hate to see it happen, but sometimes assets are stolen. When an asset goes missing, it needs to be removed from the books and depreciation schedule to reflect what assets are actually available to the company. Stolen assets almost always produce a loss.
The asset has been traded
Maybe you decided to upgrade, and traded in an asset for a new and improved version. Even though the new asset may do the same thing as the asset you traded in, your books and depreciation schedule need to be updated to reflect the revised asset values. The asset that was traded in should be removed as of the date it was traded in, and the new asset should be added as of the date it was placed in service.
How to dispose of an asset
Removing an asset from your books and depreciation schedule is typically not very complicated, but it’s more than just deleting the original purchase transaction (please don’t do that!). Because of the nuances of how often you’re recognizing depreciation, the original cost versus the accumulated depreciation on that asset, and the matter of recognizing any appropriate gain or loss, we recommend that you consult with your CPA to ensure these entries are correct, and that the depreciation schedule is properly maintained. Schedule a call with your friendly Aldridge Borden advisor for assistance with this process, or if you have any questions about your asset disposal.