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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-17/” type=”big” color=”red”] Return to Section 17 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Derecognition
Extract from FRS 102 Section 17.27-17.30
17.27 An entity shall derecognise an item of property, plant and equipment:
(a) on disposal; or
(b) when no future economic benefits are expected from its use or disposal.
17.28 An entity shall recognise the gain or loss on derecognition of an item of property, plant and equipment in profit or loss when the item is derecognised (unless Section 20 Leases requires otherwise on a sale and leaseback). The entity shall not classify such gains as revenue.
17.29 In determining the date of disposal of an item, an entity shall apply the criteria in Section 23 Revenue for recognising revenue from the sale of goods. Section 20 applies to disposal by a sale and leaseback.
17.30 An entity shall determine the gain or loss arising from derecognition of an item of property, plant and equipment as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
OmniPro comment
An asset is derecognised once it has been disposed of when no future economic benefits are expected from its disposal.
The gain on loss on derecognition is the difference between the carrying amount at that date and the net proceeds received. It should be shown within expenses in the profit and loss and not in revenue (unless the entity is involved in the rental of such assets as its principal activity, then this asset would be derecognised from PPE and recognised as inventory). Where an asset was revalued then the associated revaluation reserve would also be derecognised through a transfer from revaluation reserve to profit and loss reserves.
Example 16: Derecognition
Company A has a tangible fixed asset which has a useful life of 20 years. In year 10, there is a risk that the asset is no longer required, as technology has changed and it is likely there will no longer be demand for the product that it produces. Management expect this to be the case. If this is the case the company believe that it will have no further use and therefore would have a nil scrap value. In year 11, managements’ belief is confirmed. It is in year 10 that the asset should be derecognised as at that point there is an expectation there will be no further economic benefits from use or disposal.
If in the above example, the future economic benefits were reduced but not expected to be eliminated an impairment would have been required.
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