diff --git a/erpnext/accounts/doctype/sales_invoice/sales_invoice.py b/erpnext/accounts/doctype/sales_invoice/sales_invoice.py
index 5c6ed7a1320..b12f51e8a4b 100644
--- a/erpnext/accounts/doctype/sales_invoice/sales_invoice.py
+++ b/erpnext/accounts/doctype/sales_invoice/sales_invoice.py
@@ -1356,7 +1356,9 @@ class SalesInvoice(SellingController):
 				if item.is_fixed_asset:
 					asset = self.get_asset(item)
 
-					if self.is_return:
+					if (self.docstatus == 2 and not self.is_return) or (
+						self.docstatus == 1 and self.is_return
+					):
 						fixed_asset_gl_entries = get_gl_entries_on_asset_regain(
 							asset,
 							item.base_net_amount,
@@ -1369,8 +1371,10 @@ class SalesInvoice(SellingController):
 						add_asset_activity(asset.name, _("Asset returned"))
 
 						if asset.calculate_depreciation:
-							posting_date = frappe.db.get_value(
-								"Sales Invoice", self.return_against, "posting_date"
+							posting_date = (
+								frappe.db.get_value("Sales Invoice", self.return_against, "posting_date")
+								if self.is_return
+								else self.posting_date
 							)
 							reverse_depreciation_entry_made_after_disposal(asset, posting_date)
 							notes = _(
@@ -1467,8 +1471,10 @@ class SalesInvoice(SellingController):
 		return self._enable_discount_accounting
 
 	def set_asset_status(self, asset):
-		if self.is_return:
+		if self.is_return and not self.docstatus == 2:
 			asset.set_status()
+		elif self.is_return and self.docstatus == 2:
+			asset.set_status("Sold")
 		else:
 			asset.set_status("Sold" if self.docstatus == 1 else None)
 
diff --git a/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py b/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
index f183db99842..9dc5b33875b 100644
--- a/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
+++ b/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
@@ -3135,6 +3135,65 @@ class TestSalesInvoice(FrappeTestCase):
 			self.assertEqual(expected_values[i][2], schedule.accumulated_depreciation_amount)
 			self.assertEqual(schedule.journal_entry, schedule.journal_entry)
 
+	def test_depreciation_on_cancel_invoice(self):
+		from erpnext.controllers.sales_and_purchase_return import make_return_doc
+
+		create_asset_data()
+
+		asset = create_asset(
+			item_code="Macbook Pro",
+			purchase_date="2020-01-01",
+			available_for_use_date="2023-01-01",
+			depreciation_start_date="2023-04-01",
+			calculate_depreciation=1,
+			submit=1,
+		)
+		post_depreciation_entries()
+
+		si = create_sales_invoice(
+			item_code="Macbook Pro", asset=asset.name, qty=1, rate=10000, posting_date=getdate("2025-05-01")
+		)
+		return_si = make_return_doc("Sales Invoice", si.name)
+		return_si.posting_date = getdate("2025-05-01")
+		return_si.submit()
+		return_si.reload()
+		return_si.cancel()
+
+		asset.load_from_db()
+
+		# Check if the asset schedule is updated while cancel the return invoice
+		expected_values = [
+			["2023-04-01", 4986.30, 4986.30, True],
+			["2024-04-01", 20000.0, 24986.30, True],
+			["2025-04-01", 20000.0, 44986.30, True],
+			["2025-05-01", 1643.84, 46630.14, True],
+		]
+		for i, schedule in enumerate(get_depr_schedule(asset.name, "Active")):
+			self.assertEqual(getdate(expected_values[i][0]), schedule.schedule_date)
+			self.assertEqual(expected_values[i][1], schedule.depreciation_amount)
+			self.assertEqual(expected_values[i][2], schedule.accumulated_depreciation_amount)
+			self.assertEqual(schedule.journal_entry, schedule.journal_entry)
+
+		si.reload()
+		si.cancel()
+		asset.load_from_db()
+
+		# Check if the asset schedule is updated while cancel the sales invoice
+		expected_values = [
+			["2023-04-01", 4986.30, 4986.30, True],
+			["2024-04-01", 20000.0, 24986.30, True],
+			["2025-04-01", 20000.0, 44986.30, True],
+			["2026-04-01", 20000.0, 64986.30, False],
+			["2027-04-01", 20000.0, 84986.30, False],
+			["2028-01-01", 15013.70, 100000.0, False],
+		]
+
+		for i, schedule in enumerate(get_depr_schedule(asset.name, "Active")):
+			self.assertEqual(getdate(expected_values[i][0]), schedule.schedule_date)
+			self.assertEqual(expected_values[i][1], schedule.depreciation_amount)
+			self.assertEqual(expected_values[i][2], schedule.accumulated_depreciation_amount)
+			self.assertEqual(schedule.journal_entry, schedule.journal_entry)
+
 	def test_sales_invoice_against_supplier(self):
 		from erpnext.accounts.doctype.opening_invoice_creation_tool.test_opening_invoice_creation_tool import (
 			make_customer,