Chapter 8: De-recognition of property, plant and equipment

An item of property, plant, and equipment should be derecognized when:

• It is disposed of.
• No future economic benefits are expected from its use or disposal.

The disposal date is the date when the recipient obtains control of the item by the requirements for determining when a performance obligation is satisfied in IFRS 15.

The consideration to be included in the gain or loss arising from the de-recognition of an asset is determined by the requirements for determining the transaction price in IFRS 15.

Subsequent changes to the estimated amount of the consideration included in the gain or loss are accounted for in accordance with the requirements for changes in the transaction price in IFRS 15.

An entity might routinely sell items of property, plant, and equipment that it originally held for rental to others in the course of its ordinary activities. Those assets are transferred to inventories at their carrying amount when renting is ceased, and the assets become held for sale. The proceeds from this sale should be recognized as revenue by IFRS 15.

An asset disposed of via a sale and leaseback is accounted for under IFRS 16.

Intended disposals of property, plant, and equipment

Items of property, plant, and equipment that are classified as held for sale by IFRS 5 are outside the scope of IAS 16.

Gain or loss arising on derecognition When an item of property, plant and equipment is derecognised, the gain or loss arising is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. As discussed, when a revalued asset is disposed of, any credit balance on the revaluation reserve attributable to that asset may be transferred directly to retained earnings (though such a transfer is not mandatory) but must not be reflected in profit or loss. Except when IFRS 16 (or, for entities that have not yet adopted IFRS 16, IAS 17) requires otherwise in the circumstances of a sale and leaseback, the gain or loss arising on derecognition of an item of property, plant and equipment should be included in profit or loss when the amount is derecognised. Gains arising on derecognition of property, plant and equipment should not be classified as revenue (other than in the circumstances described).

Consideration to be included in the gain or loss arising from derecognition The amount of consideration to be included in the gain or loss arising from derecognition of an item of property, plant and equipment is determined in accordance with the requirements for determining the transaction price in IFRS 15. Subsequent changes to the estimated amount of the consideration included in the gain or loss should be accounted for in accordance with the requirements for changes in the transaction price in IFRS 15.