Gain or loss on derecognition

Learning objectives

• Calculate the gain or loss on disposal of an intangible asset.L2, L3
• Recognise the disposal and present the gain outside revenue.L2, L3
• Determine the date of disposal and the amount of consideration used for the gain or loss on disposal (IFRS 15).L2, L3

Normative references

• IAS 38 §113Gain or loss = net disposal proceeds − carrying amount, recognised in profit or loss when the asset is derecognised (unless IFRS 16 requires otherwise on a sale and leaseback); gains are not classified as revenue.
• IAS 38 §114The disposal of an intangible asset may occur in a variety of ways (sale, entering into a finance lease, donation). The date of disposal is the date on which the recipient obtains control of the asset, determined in accordance with the requirements of IFRS 15 for determining when a performance obligation is satisfied. IFRS 16 applies to a disposal by a sale and leaseback.
• IAS 38 §116The amount of consideration included in the gain or loss on derecognition is determined in accordance with the requirements of IFRS 15 on the transaction price (paras. 47 to 72). Subsequent changes to the estimated amount of that consideration are accounted for in accordance with the requirements of IFRS 15 on changes in the transaction price.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

15 questions

• An entity sells a portfolio of brand licensing rights, acquired for {cost} and amortised by {accumulated_amortisation} at the date of sale. The selling price is {sale_price} and the entity bears {disposal_costs} of legal fees related to the sale. What gain on disposal is recognised in profit or loss?L3
• An entity sells for cash, for {sale_price}, a business software asset acquired for {cost} and amortised by {accumulated_amortisation} at the date of sale. No costs of disposal are incurred. Record the derecognition entry.L3
• How is the gain or loss arising from the derecognition of an intangible asset determined and recognised?L2
• Kerlune sells a distribution licence acquired for {cost} and amortised by {accumulated_amortisation} at the date of sale. The agreed price is {sale_price} and Kerlune pays {disposal_costs} of broker fees to complete the sale. Calculate the carrying amount of the licence at the date of sale and the result on disposal.L2
• The Sarvanel group, which applies the cost model, sells to a competitor a portfolio of subscriber contracts acquired for {cost}. At the date of disposal, accumulated amortisation amounts to {accumulated_amortisation} and accumulated impairment losses to {accumulated_impairment}. The selling price is {sale_price}; legal costs directly related to the disposal amount to {disposal_costs}. Calculate the carrying amount at the date of disposal and the result on disposal.L3
• Brenoval acquired planning software on 1 January 20X1 for {cost}, available for use on that date and amortised on a straight-line basis over {useful_life} years, with no residual value. It sells the software on 30 September 20X3 for {sale_price}, with no costs of disposal and without prior classification as held for sale (IFRS 5). Its reporting date is 31 December. Calculate the carrying amount at the date of disposal and the result on disposal.L3
• The professional sports club Tormelis obtained an image broadcasting right on 1 January 20X2 for {cost}, usable immediately and amortised on a straight-line basis over {useful_life} years, with no residual value. On 30 June 20X4, it resells this right to a television channel for {sale_price} and bears {disposal_costs} of deed costs, without prior classification as held for sale (IFRS 5). Its financial year is the calendar year. Determine the carrying amount of the right on the day of the resale and the result arising.L3
• Halvérine sells on credit, for {sale_price} payable within 60 days, a licence to exploit culinary recipes acquired for {cost} and amortised by {accumulated_amortisation} at the date of disposal. No costs are incurred. Record the derecognition entry.L2
• The Quintéra laboratory, which applies the cost model, sells for cash, for {sale_price}, a marketing authorisation dossier acquired for {cost}. At the date of sale, the asset carries {accumulated_amortisation} of accumulated amortisation and {accumulated_impairment} of accumulated impairment losses. No costs of disposal are incurred. The sales director wants to present the price in revenue. Record the derecognition entry.L3
• The Ambrelys cooperative holds an online booking website developed by a contractor, recognised at {cost} and amortised by {accumulated_amortisation}. After the related activity is permanently closed, the website is taken offline; it will neither be reused nor sold and no disposal proceeds are expected. Record the resulting entry at the year-end.L3
• The Fenwald group, a sporting goods distributor, sells a secondary brand acquired for 300,000 and amortised by 120,000 at the date of sale. The price is 230,000; an investment bank charges 6,000 for the transaction. The chief executive points out that Fenwald regularly sells brands and proposes to include the selling price in revenue. Which treatment should be adopted?L3
• Myrcane sells a patent with a carrying amount of 60,000 at the date of disposal. The buyer pays 52,000 and Myrcane pays 3,000 of patent attorney fees directly related to the disposal. What result does Myrcane recognise?L2
• During the year, Brévaline sold for 55,000 a licence whose carrying amount was 40,000 at the date of sale, giving a gain of 15,000. Which amount must appear on the disposals line in the reconciliation of carrying amounts of the Licences class?L3
• Brévalis sells a brand to a competitor. The contract is signed on 15 November 20X1; according to the analysis performed under IFRS 15, the buyer obtains control of the brand on 10 January 20X2, the date on which the rights are actually transferred. The price is received on 28 February 20X2. Brévalis has a reporting date of 31 December 20X1 and the brand has not been classified as held for sale. On which date is the brand derecognised?L2
• Lorvane sells a patent whose carrying amount is {carrying_amount} at the date control passes to the buyer. The price of {nominal_price} is payable {credit_period} months after that date, with no costs of disposal. According to the analysis performed under IFRS 15, this payment term is a significant financing component, and the appropriate discount rate is {discount_rate}% a year (discounting over a single period); Lorvane does not apply the IFRS 15 practical expedient for terms of one year or less. The patent has never been classified as held for sale. Calculate the consideration included in the result on disposal and the gain on disposal.L3