Retirements and Disposals (derecognition)

The carrying amount of a tangible fixed asset should be derecognised:

• on disposal; or
• when no future economic benefits are expected from its use or disposal

Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the profit and loss statement. On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss statement except that, to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve.

For example, the journal entries for the sale of an asset for 1,00,000 appearing in the books at `1,15,000, if Revaluation Reserve is appearing at 20,000 will be as follow:

Bank Account

Revaluation Reserve Account

To Fixed Assets Account                    Dr. ` 1,00,000

Revaluation Reserve Account              Dr. ` 15,000

To General Reserve Account                                                  ` 1,15,000

Dr. ` 5,000                              ` 5,00