An intangible asset should be derecognised when:

• it is disposed of; or
• no future economic benefits are expected from its use or disposal.

The gain or loss on derecognition (that is, on disposal or retirement from use) of an intangible asset is the difference between the net disposal proceeds and the carrying amount.

The amount of consideration to be included in the gain or loss arising from the derecognition of an intangible asset is determined by the requirements for the calculation of the transaction price in IFRS 15. Subsequent changes to the estimated amount of the consideration included in the gain or loss are accounted for following the requirements for changes in the transaction price in IFRS 15.

The gain or loss on derecognition should be recognised in the income statement for the period in which derecognition occurs. The only exception is where IAS 17/IFRS 16 requires a different treatment of a sale and leaseback.

Gains and losses on disposal of intangible assets should not be recognised as revenue. They are usually included in other income as gains and losses.

The nature and amount of the item should be disclosed separately where the amount of the gain or loss is of such size, nature or incidence that its disclosure is relevant to an understanding of the entity’s performance for the period. IAS 1 gives disposals of items of property, plant and equipment as an example of circumstances that might give rise to separate disclosure of gains or losses. The same would apply to disposals of intangible assets.

Disposals of intangible assets might occur in a variety of ways and include disposals by sale, entering into a finance lease (as lessor) and by donation. The date of disposal is the date that the recipient obtains control of that asset in accordance with the requirements for determining when a performance obligation is satisfied in IFRS 15.

Intangible assets that have no further use to the entity should be derecognised, as there are no future economic benefits expected from the asset’s continuing use or from its disposal.

Derecognition of capitalised expenditure An entity is developing a new IT system that met the recognition criteria for capitalisation as an internally generated intangible asset in the previous year. Management decides to terminate the development of the IT system in the current year. The entity cancels the contract to develop the IT system and dismisses the members of staff who were involved in the development project. The partially completed IT system has no alternative use and has no sales value. The entity should derecognise the asset in the current year.

Intended disposal of intangibles

Intangible assets that are classified as held-for-sale under IFRS 5 are outside the scope of IAS 38. Intangible assets that meet the conditions to be classified as held-for-sale under IFRS 5 are accounted for in accordance with that standard.

Date of disposal

The date of disposal of an intangible asset is the date that the recipient obtains control of the asset in accordance with the requirements for determining when a performance obligation is satisfied in IFRS 15.

Gain or loss arising on derecognition (player transfers) – example Entity A, a football club, undertakes the following transactions. Entity A transfers a player to another club (receiving club). When Entity A recruited the player, it registered the player in an electronic transfer system. Registration means the player is prohibited from playing for another club and requires the registering club to have an employment contract with the player which prevents the player from leaving the club without mutual agreement. Together the employment contract and registration in the electronic transfer system are referred to as a ‘registration right’. When it originally acquired the player, Entity A recognised costs incurred to obtain the registration right as an intangible asset applying IAS 38. As part of its ordinary activities, Entity A uses and develops the player through participation in matches, and then potentially transfers the player to another club. Entity A and the receiving club enter into a transfer agreement under which Entity A receives a transfer payment from the receiving club. The transfer payment compensates Entity A for releasing the player from the employment contract before the contract ends. The registration in the electronic transfer system is not transferred to the receiving club but, legally, is extinguished when the receiving club registers the player and obtains a new right. Entity A derecognises its intangible asset upon the receiving club registering the player in the electronic transfer system. As Entity A recognised the registration right as an intangible asset applying IAS 38 it also applies the derecognition requirements in IAS 38 on derecognition of that right. IAS 38 states that “the gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised … Gains shall not be classified as revenue”. As such, Entity A recognises the difference between the net disposal proceeds and the carrying amount of the registration right in profit or loss, but not as revenue. The transfer payment arises from the transfer agreement which requires Entity A to release the player from the employment contract. Entity A is therefore required to undertake some action for the right to be extinguished. Accordingly, the transfer payment compensates the entity for its action in disposing of the registration right and, thus, is part of the net disposal proceeds described in IAS 38. Entity A does not recognise the transfer payment received, or any gain arising, as revenue applying IFRS 15. IAS 7 lists cash receipts from sales of intangibles as an example of cash flows arising from investing activities. Accordingly, Entity A should present cash receipts from transfer payments as part of investing activities. This conclusion was confirmed by the IFRS Interpretations Committee in the June 2020 IFRIC Update.

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Cost basis for cryptocurrency assets which are indefinite-life intangible assets for the purpose of calculating gain or loss on derecognition An entity may acquire cryptocurrency assets at different times and cost. Upon disposal of some, but not all, of its cryptocurrency assets, the entity will need to determine the cost of the assets being disposed of. As cryptocurrency assets are usually interchangeable units that can be divided into smaller decimal units, an entity may not be able to identify the specific unit of cryptocurrency assets sold or transferred. If the cryptocurrency assets are measured at cost, an entity can choose, as a matter of accounting policy, a reasonable and rational method for determining the cost of each unit of cryptocurrency assets sold or transferred such as the first-in, first-out method or the weighted average method. The same accounting policy should be applied when the entity tests its cryptocurrency assets for impairment.

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 an intangible asset 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.