Lesson 5 of 8 · All lessons in this module
- Intangible assets: definition, purchase and business combinations
- Internally developed intangibles and capitalising versus expensingVideo lesson
- Impairment of PPE and intangiblesVideo lesson
- Assets held for sale and impairment reversals
- Derecognition: sale, abandonment, exchange and spin-offVideo lesson
- Disclosures for PPE and intangible assets
- Fixed asset turnover, asset age and reinvestmentVideo lesson
- Integrated cases: a purchase price allocation and the PPE note
Lesson 5 of 8 · 13 min
Derecognition: sale, abandonment, exchange and spin-off
When a long-lived asset leaves the balance sheet, the gain or loss is what the company receives minus the asset's carrying amount at that date.
In short
- Derecognise an asset when it is disposed of or is expected to provide no future benefits from use or disposal.
- Gain or loss on sale = sale proceeds − carrying amount (cost − accumulated depreciation, adjusted for any impairment or revaluation).
- In the indirect cash flow statement the gain is subtracted from (a loss added to) net income; the proceeds are an investing inflow.
- Abandonment: no proceeds, so a loss equal to the carrying amount.
- Exchange: new asset at fair value (usually of the asset given up); difference from carrying amount is a gain or loss. Spin-off: no gain or loss.
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