Gain or loss on disposal

Learning objectives

• Calculate the gain or loss on disposal (net disposal proceeds less carrying amount) and recognise it in profit or loss.L2, L3
• Calculate, from the case data, the amount relating to the gain or loss on disposal and justify the basis of calculation.L2, L3
• Record the entry relating to the gain or loss on disposal and state its effect on the financial statements.L2, L3, L4

Normative references

• IAS 40 §69Gain or loss on retirement or disposal: the difference between the net disposal proceeds and the carrying amount, recognised in profit or loss for the period, unless IFRS 16 requires otherwise on a sale and leaseback.
• IAS 40 §70Derecognition: the amount of consideration included in profit or loss is determined under the IFRS 15 requirements for determining the transaction price (paras. 47 to 72); subsequent changes to its estimate follow the IFRS 15 requirements on changes in the transaction price.

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

6 questions

• A fire destroys Hortane's investment property, measured under the cost model and carried at 1,200,000. The property is permanently out of use and no disposal proceeds are expected (case facts). Which treatment is consistent with the rule?L3
• Jovane, which applies the cost model, replaces the lift of an investment property. The new lift costs {replacement_cost} and meets the recognition criteria. The old lift was carried at {carrying_amount_of_replaced_part} (case data) and has no disposal value. Calculate the loss to recognise on the replaced part and the net change in the carrying amount of the property.L3
• Kelvane replaces the roof of an investment property. The new roof, which meets the recognition criteria, costs {replacement_cost}, paid in cash. The old roof was included in the carrying amount of the property at {carrying_amount_of_replaced_part} (case data) and has no disposal value. The entity applies the cost model. Record the entry.L3
• Lorvane measures its investment property at fair value. It sells a property for {sale_price}, with {disposal_costs} of selling costs. The carrying amount at the date of disposal, equal to the latest fair value recognised, is {carrying_amount}. Calculate the net disposal proceeds and the gain or loss on disposal.L2
• Mirane applies the cost model. It sells a building held as investment property whose original cost is {cost} and accumulated depreciation {accumulated_depreciation} (no impairment loss). The agreed price is {agreed_price}, and the agency fees borne by Mirane amount to {agency_fees}. What loss on disposal is recognised in profit or loss, and on what net proceeds?L3
• Nolvane applies the cost model. It sells an investment property whose gross cost is {gross_cost} and accumulated depreciation {accumulated_depreciation}. It collects {net_proceeds} net of selling costs. Record the disposal entry.L3