How to Write off a Fixed Asset? (2024)

How to Write off a Fixed Asset

Writing off a fixed asset involves removing it from the balance sheet because it is no longer usable or providing any benefit to the business. This could happen if the asset is fully depreciated, sold, destroyed, or deemed obsolete.

Here are the steps to write off a fixed asset:

1. Identify the Need for a Write-off: An asset should be written off when it is no longer usable or does not contribute to the business operation.
2. Calculate Accumulated Depreciation: Determine the total accumulated depreciation of the asset up until the date of the write-off.
3. Record the Write-off: Make a journal entry to debit (reduce) the Accumulated Depreciation account and credit (reduce) the corresponding Fixed Asset account.

The journal entry for writing off a fully depreciated asset is:

4. Update Asset Register: Remove or indicate the write-off in the asset register to maintain accurate records.
5. Discard the Asset: Dispose of or sell the asset, following any relevant regulations or company policies.

If the asset is not fully depreciated or if it’s sold for salvage value, the process is a bit more complicated because you might also have to record a loss or gain on the disposal of the asset. A gain or loss is recorded as the difference between the asset’s carrying amount (original cost less accumulated depreciation) and the proceeds received from its disposal. If the proceeds are less than the carrying amount, the difference is recorded as a loss. If the proceeds are more than the carrying amount, the difference is recorded as a gain.

As always, when handling such matters, it’s important to consult with a qualified accountant or financial advisor.

Example of How to Write off a Fixed Asset

Let’s consider a company called “PrintCo” that has a printing machine. The printing machine was purchased 5 years ago for $20,000, and it has been depreciated over its useful life and now has an accumulated depreciation of $20,000 (assuming a 5-year straight-line depreciation with no residual value). The machine broke down beyond repair and cannot be sold for any salvage value. Here’s how PrintCo would write off this fixed asset:

• Identify the Need for a Write-off: The printing machine is no longer usable, hence it should be written off.
• Calculate Accumulated Depreciation: The accumulated depreciation on the machine is $20,000.
• Record the Write-off: The journal entry to write off this fully depreciated asset would be:
  Date, Account Title, Debit ($), Credit ($)
  06/23/2023, Accumulated Depreciation, 20,000, Printing Machine (Fixed Asset), 20,000
  This entry reduces the Accumulated Depreciation account and the Printing Machine asset account by $20,000 each, removing the machine from the company’s books.
• Update Asset Register: The printing machine is then removed from PrintCo’s asset register.
• Discard the Asset: PrintCo would dispose of the broken printing machine in accordance with any applicable environmental regulations and company policies.

Remember, this is a simplified example, and the actual process can vary depending on many factors, such as the asset’s condition, any possible salvage value, and the company’s accounting policies. Always consult with a qualified accountant or financial advisor when dealing with these kinds of transactions.