Lesson 5 of 7 · 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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