I have an asset that I purchased using the Spend Money function from a Bank Account for $500 on 11/25/2013. I recorded depreciation against this asset by clicking Accumulated Depreciation >> New Depreciation Entry for $250 on 12/15/2013 and $250 on 12/15/2014. Now that the Purchase Cost and total Accumulated Depreciation values are equal ($500) I need to dispose of the asset (scrapped). I clicked the Edit button on the asset I am intending to dispose of and checked Disposed fixed asset, then enter the date of disposal as 12/16/2014.
The Book Value now says “Disposed on 12/16/2014”.
I expected the book value on the Balance Sheet (in Fixed Assets and Fixed assets, accumulated depreciation) to reduce to zero, but it still shows $500 and ($500) respectively. I confirmed this using Balance Sheet reports dated 12/16/2014, 12/31/2014 and 6/7/2015 (but only uploaded an image from 12/31/2014 due to new user picture upload limitation).
I actually have a similar problem with an Intangible Asset that has a larger number of Accumulated Amortization entries, but since the Intangible Asset function is new I wanted to confirm it using a simplified example in Fixed Assets before I posted my question.
Can you please advise why the Balance Sheet has not reduced the Fixed Assets and Fixed assets, accumulated depreciation entries to zero and how I can resolve this issue?
Asset accounts are perpetual. Your $500 purchase has now been offset by $500 of depreciation, so the book value of that particular asset is zero. And by ticking the disposed box, you have further annotated your fixed asset records. But that does nothing to alter the facts that you have (a) made an investment in the asset, as recorded by the fixed assets account and (b) fully depreciated the item, as reflected in the accumulated depreciation account. Your balance sheet reflects this, correctly reporting your total assets.
I have items on the depreciation schedule I submit with my tax returns that I haven’t owned in almost 30 years, showing original cost, total depreciation, and any gain/loss on disposition. None contribute to net assets because the net of all that is zero.
Bottom line: everything is as it should be. Other users from different tax jurisdictions might have different experiences
@Tut When you sell or otherwise dispose of the asset, it is standard practice to remove the accumulated depreciation at the same time. Otherwise, an unusually large amount of accumulated depreciation will build up on the balance sheet over time. I’ve never actually heard of keeping the Accumulated Depreciation of a disposed asset on the Balance Sheet. A few references are Accounting Coach and Accounting Tools.
I made this post after I reviewed another post where @lubos said “… mark that asset as Disposed so the asset book value will be deducted from balance sheet…”
Additionally, the Fixed Assets Guide states that clicking the Disposed fixed asset box “will transfer the book value of an asset to the Loss on disposal expense account and the book value on the balance sheet will be reduced to zero.”
Has the developer changed the way the software functions since this time? If so, is there another method to reduce Fixed/Intangible Assets and Accumulated Depreciation/Amortization to zero when removing disposed assets so it doesn’t lead to such a stuffed Balance Sheet?
All understood, @JSweeney. And I’m a big fan of Accounting Coach. If he tells me there is a Santa Claus, I’ll believe it!
This exchange points out how flexible accounting can be. My experience comes from relatively few fixed assets, all of which were eventually fully depreciated. So I guess leaving them on the schedule was easier for my accountant than taking them off, and had no affect on my company’s position except for making some offsetting numbers larger. It certainly makes sense to remove both the asset’s cost and its accumulated depreciation from the totals.
However, I may be misunderstanding how indicating disposal is supposed to work in Manager. I have installed v15.2.17. But both the cost and accumulated depreciation of my only disposed asset are still in the account totals. And the item still shows in the Fixed Asset Summary (with a closing balance of zero). So I don’t see the point of having ticked the disposal box. Obviously, I could reduce the account balances via a journal entry, but the asset would remain on the list.
Late edit: does it matter that there was no sales transaction for the disposed asset? The asset was fully depreciated and past its depreciable life. It simply broke and was discarded. To make things more complicated, the disposal occurred prior to my start date with Manager. Because I was duplicating what my accountant had done previously, I recreated my complete fixed asset list, including that disposed item.
Later edit: I thought I had this figured out and tried to remove the asset cost and accumulated depreciation via journal entry. But Accumulated Depreciation account is not available under journal entries. So now I’m more confused.
@Tut, flexible indeed. I can see how the need for closing out an asset’s cost and accumulated depreciation decreases for companies with very few assets.
@lubos Another factor I now find interesting is that the Fixed Assets Summary doesn’t have transaction links like all the other reports. Is this intended?
Also, can I request a report called Intangible Asset Summary that functions exactly like the Fixed Asset Summary (or potentially just an Asset Summary that includes both Fixed and Intangible Assets)?
@lubos, I see at least some of the problem. The asset was acquired and already fully depreciated when I started using manager, so its book value at startup was zero. But it was also disposed of prior to startup, because I was duplicating the fixed asset summary my accountant had prepared, in which none of my few assets were removed. And I was preparing my Fixed Asset Summary (FAS) in Manager from my company’s actual inception until current date, not from Manager start date.
Under those circumstances, the FAS report should include the disposed asset. But if I prepare a FAS beginning on my Manager start date, the disposed asset is still included, even though its disposal date is prior to Manager start date. Only when I change the disposal date to something after Manager start date do the asset’s cost and accumulated depreciation show up as being deducted on the FAS. And no matter what I try, the asset itself remains on the FAS, although various date changes for the report may result in all-zero entries for it.
Some of my confusion would have been avoided if I had never entered the disposed asset at all, because its cost and depreciation would never have been included. But the current behavior of Manager could still lead to inconsistencies. Specifically, one could have a FAS in which assets disposed of after Manager start date would still be listed (possibly with all-zero entries, depending on date range), but assets disposed of prior to Manager start date would be absent. That might be a problem during an audit, because the full history of fixed assets for the company would not be recoverable from Manager. Of course, this would not be a problem if Manager is used from the outset of company operations, but only in the case of conversion to Manager after some time.
To summarize, most of Manager’s actions seem correct. And had I followed what is apparently more common accounting advice and removed disposed assets from the books, I would probably never have noticed this issue. But we are still left with the fact that assets marked as disposed may still appear in account totals if their disposal dates are prior to Manager start date.
Further thinking on this issue prompts me to describe a use case and a report shortcoming.
The use case involves accelerated depreciation. In the U. S., and possibly elsewhere, relatively inexpensive fixed assets can be depreciated on an accelerated schedule to simplify bookkeeping. But their statutory depreciable life remains unchanged, so if you dispose of such an asset before the statutory life has passed, you must undo the depreciation for the unused life. For that reason, it may be advisable to keep disposed assets on the books after they have been sold, at least until their depreciable life is complete.
The report shortcoming is related. Presently, the Fixed Asset Summary makes no distinction between fully depreciated assets and disposed assets. If a disposed asset remains on the books, whether for continuity of record keeping or because disposal occurred during the current reporting period, it would be helpful if the Fixed Asset Summary indicated the disposed status.
