An asset is said to be fully depreciated when:

• A. it has been held for more than five years
• B. it is no longer physically usable
• C. its book value equals its estimated salvage value
• D. its market value drops to zero

Answer: (C)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or reduction in value of the asset over time.
2. Identify the key terms in the problem: 'Fully depreciated' means that the asset's book value (its value on the accounting records) has been reduced to its estimated salvage value (the expected residual value at the end of its useful life).
3. Clarify the distinction between book value and market value: Book value is the value of the asset as recorded in the accounting books, while market value is the price the asset could fetch in the open market. Depreciation affects book value, not market value.
4. Evaluate the options provided: The correct condition for an asset to be fully depreciated is when its book value equals its estimated salvage value. This means the asset has been depreciated to the point where no further depreciation expense will be recorded.
5. Conclude that the other options are incorrect: The length of time the asset has been held, its physical usability, or its market value dropping to zero are not criteria for determining whether an asset is fully depreciated.