Disposals of property and equipment

An item of property, plant and equipment is derecognised when it's sold, scrapped or otherwise disposed of, or when no future benefits are expected from it (IAS 16.67). The steps are always the same:

1. Bring depreciation up to the disposal date. Depreciation stops on the date the asset is derecognised, so a sale part-way through the year needs a part-year charge first. Skip this and the carrying amount is overstated — and the gain or loss is wrong by exactly the missing depreciation.
2. Compute the carrying amount: cost − accumulated depreciation (including step 1).
3. Compare with the proceeds. Gain or loss = net disposal proceeds − carrying amount (IAS 16.71). Proceeds above carrying amount give a gain; below, a loss. Scrapping an asset with no proceeds gives a loss equal to its whole carrying amount.
4. Post one entry that removes the asset's cost (credit the asset account) and its accumulated depreciation (debit the contra account), records the proceeds, and balances with the gain or loss.

Part-exchange. When an old asset is traded in against a new one, the trade-in allowance is the disposal proceeds for the old asset, and the new asset's cost is the full price — the allowance plus the cash paid. Netting the two hides both the disposal result and the true cost of the new asset. (A dealer's allowance can be inflated to make a deal look better; the proceeds should reflect the fair value of what's given up.)

Presentation. Gains on disposal are not revenue (IAS 16.68): they're presented separately from revenue in profit or loss. A gain on selling equipment used in the business is still part of operating profit — this chart puts it in Other operating income, next to the loss account, which sits in operating expenses — and under IFRS 18 (annual periods from 1 January 2027) both fall in the operating category. In the cash flow statement the proceeds are an investing inflow; under the indirect method the gain is deducted from (or the loss added back to) profit in operating activities, because it isn't an operating cash flow. A part-exchange allowance involves no cash at all, so only the cash actually paid appears.