We have numerous assets on the books that are fully depreciated and still in use. These assets do not meet the criteria of our new capitalization policy. Can they be written off? I was unable to find any authoritative guidance.
Can you apply a new capitalization policy retroactively?
Answers
What are you going to write off if they are fully depreciated, hence ZERO value? Generally speaking, write offs are for those WITH value (minimal or otherwise) that are no longer in service or you can no longer sell (or get value from).
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Correction......You fully depreciated assets will (or should) have a nominal value of $1.
Fully depreciated meaning a net value of zero. When I say write off I mean to remove the asset and related accumulated depreciation from the books.
Austin,
Anon gave you the answer why you shouldn't take the fully depreciated assets off the books. There is a control rationale for maintaining nominal value on the books.
If it does not qualify for capitalization, remove gross value, accumulated depreciation/amortization and net asset value from the books, so that the assets do not appear in the books as asset. Whether it is zero value or not, the assets should not appear as assets if they do not qualify to be so.
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There is a reason for maintaining fully depreciated assets in the books. If you remove the assets with nominal value (but still being used) from the books, there is no way to monitor them or determine that you still have it.
ALL assets of a company should be reflected on the balance sheet, regardless of value. Having a capitalization threshold is simply an accounting convention based on materiality (i.e., it's immaterial to capitalize $500 assets to the balance sheet). You should not retrospectively apply a new accounting convention to prior periods. I'd suggest reading FAS 154 for more detail.
I understand there is a control rationale for keeping fully depreciated assets on the books. I apologize as I should have framed the question in a different way.
What I'm really trying to get at is... if the assets and related accumulated depreciation are removed from the books because they no longer meet our capitalization policy, is it compliant with gaap? Irrespective of any internal control implications.
Upon acquisition, you will determine if the asset qualifies for capitalization in accordance with your policies. The asset must meet the GAAP requirements to be capitalized. After that, you depreciate the asset according to the useful life determined to the salvage value (or other amount as appropriate). If the asset gets down to zero or salvage but is still in use, it stays on your books as a fully depreciated asset (or stays as salvage value). When it is no longer in use or disposed of, you remove the asset and related accumulated depreciation with any value remaining written off through the P&L. I guess I'm confused what part of your capitalization policy is causing you to reassess the asset that already qualified under your policy.
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The dollar value threshold of the capitalization policy is now $5,000. There are numerous fully depreciated assets on the books with a historical cost less than $5,000, some well below that threshold.
There is an administrative burden associated with the physical inventory requirements of these assets. So before considering removing that burden, I wanted to know whether it is even compliant with GAAP to apply the new capitalization policy retroactively.
Austin
I understand your view from an
Do the regulations prescribe how you write off assets and dispose of them?
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