Fixed Asset Accounting 101: Asset Disposition & Ghost Assets

To comply with the requirements set forth by the Government Accounting Standards Board, public entities must accurately track assets from acquisition through disposal. Often times, these organizations have strong policies and practices in place for everything from procurement to active asset inventory but have a harder time managing the disposal of assets.

Failure to properly account for asset disposals can result in assets no longer in place and in use remaining on your books. These assets are referred to as “ghost assets” and you’ll want to get them off your books before your next audit.

Asset Write-offs

Upon disposal of a fixed asset, you may be required to write off the remaining value. Below are a few scenarios to help you understand when a write off is needed. However, we’d like to remind you to always check with your auditor to determine what you should track and report.

When an asset is disposed of at the end of its useful life:

Assets that are in place and in use cannot be on your books with a value of $0. Therefore, salvage value is used to determine how much an asset can be depreciated over its useful life. Upon disposal, you can write off this residual or salvage value.
Example:

Original Cost $10,000
Salvage Value $500
Depreciation $9,500 over useful life
($500 written off upon disposal)

In this example, an asset purchased for $10,000 has a salvage value of $500. This value represents the estimated resale value of the asset at the end of its useful life. By subtracting the salvage value from the original cost, you get $9500 which is the amount that can be depreciated over the useful life of the asset. In this scenario, at the end of the useful life of the asset, all that remains on your books is the salvage value which can be written off upon disposal.

When an asset is disposed of before the end of its useful life:

If an asset is disposed of before the end of its useful life, the remaining depreciation AND salvage value can be written off upon disposal. This is sometimes referred to as disposal costs.

Have other fixed asset accounting questions? We’re here to help. Email us at info@assetworks.com!

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