Last reviewed: July 2026.
A fixed asset disposal removes an item of property, plant and equipment (PPE) from the accounts when it is sold, scrapped, abandoned, exchanged or no longer expected to provide future economic benefits. Correct accounting updates depreciation, determines the carrying amount, removes the asset and related accumulated depreciation, records any proceeds and recognises the resulting gain or loss.
This guide explains the overall IAS 16 framework. For the detailed disposal-account method, journal sequence and worked ledger examples, use the fixed asset disposal entries guide.
When a fixed asset is derecognised
Under IAS 16, an item of PPE is derecognised when it is disposed of or when no future economic benefits are expected from its use or disposal. The accounting date should reflect the substance of the transaction and be supported by documents such as a sale agreement, delivery confirmation, scrapping certificate or authorised disposal form.
A fully depreciated asset is not removed merely because its carrying amount is zero. If the entity still controls and uses it, the item normally remains in the asset register until derecognition occurs.
Disposal versus held-for-sale classification
A plan to sell an asset does not by itself create a disposal entry. When the requirements of IFRS 5 are met, the asset may first be classified as held for sale, measured under that Standard and presented separately. Depreciation ceases when the asset is classified as held for sale, not simply when management begins considering a sale.
Update depreciation before disposal
Unless the asset has already been classified as held for sale, depreciation is normally updated to the derecognition date using the entity’s existing method, useful life, residual value and policy. This produces the carrying amount immediately before disposal.
For example, if an asset is sold six months after the previous reporting date and depreciation is charged monthly, recognise the six-month charge before calculating the gain or loss.
Calculate the carrying amount
Carrying amount = Cost or revalued amount − Accumulated depreciation − Accumulated impairment
If equipment cost $80,000, accumulated depreciation after the final charge is $52,000 and no impairment exists, its carrying amount is $28,000.
Calculate the gain or loss
Gain or loss on disposal = Net disposal proceeds − Carrying amount
A positive result is a gain and a negative result is a loss. Net proceeds reflect the consideration attributable to the disposed asset after directly related disposal costs where relevant. The resulting gain or loss is recognised in profit or loss; it is not treated as the asset’s full sale proceeds.
Accounting sequence
- Confirm the exact asset, component and disposal date.
- Record depreciation and any required impairment up to that date.
- Determine the final carrying amount.
- Remove the asset’s recorded cost or revalued amount.
- Remove the related accumulated depreciation and impairment.
- Record cash, receivable or other consideration.
- Recognise the balancing gain or loss.
- Update the fixed asset register and supporting schedules.
Accounting systems may use either a separate disposal account or a direct compound journal. Both approaches can produce the same result when every component is captured correctly. The ledger-entry guide demonstrates both approaches.
Short worked example
| Detail | Amount |
|---|---|
| Asset cost | $100,000 |
| Accumulated depreciation at disposal | $72,000 |
| Carrying amount | $28,000 |
| Net proceeds | $35,000 |
| Gain on disposal | $7,000 |
The detailed journal debits cash and accumulated depreciation, credits the asset cost and credits the gain. The entries must balance and agree with the asset register.
Sale, scrapping and abandonment
A sale normally produces cash or a receivable. If an asset is scrapped or abandoned with no proceeds, its remaining carrying amount is generally recognised as a loss when it is derecognised. Supporting evidence should establish that the item has been physically removed, destroyed or otherwise surrendered.
Trade-ins and other non-cash disposals
A trade-in contains two accounting elements: derecognition of the old asset and recognition of the new asset. Do not record only the cash difference. Determine the consideration attributable to the old asset, calculate its gain or loss and measure the replacement asset under the applicable requirements.
Insurance compensation is assessed separately from derecognition. A recovery does not automatically replace the disposal entry for the damaged or lost asset.
Revalued assets and revaluation surplus
For an asset carried under the revaluation model, use the updated carrying amount at disposal. A related revaluation surplus may be transferred directly within equity to retained earnings in accordance with the entity’s policy and IAS 16. That transfer is not recycled through profit or loss as part of the disposal gain.
Part disposals and component replacement
When a separately depreciated component is replaced or only part of an asset is disposed of, derecognise the carrying amount of the identifiable component. If its original cost is not directly available, a reasonable estimate may be required using the replacement cost, historical records and depreciation information. The old component should not remain recorded while the replacement is also capitalised.
Presentation, disclosure and reconciliation
The disposal should flow consistently through the general ledger, PPE note, cash-flow information and fixed asset register. Material gains or losses may require separate presentation or explanation under the entity’s reporting policies.
- reconcile proceeds to invoices, receivables and bank receipts;
- agree the removed cost and accumulated depreciation to the specific asset record;
- retain approval, buyer, trade-in or scrap evidence;
- review related impairment, restoration, grant and tax consequences separately;
- confirm insurance and maintenance records are updated;
- preserve the historical disposal record for audit purposes.
Common errors
- failing to update depreciation to the correct date;
- calculating the gain using original cost instead of carrying amount;
- removing cost but leaving accumulated depreciation recorded;
- recording all sale proceeds as revenue;
- ignoring impairment, disposal costs or a revaluation balance;
- leaving disposed assets in the register;
- recording only the cash difference on a trade-in.
Related accounting guides
- Fixed asset disposal journal and ledger entries
- Fixed asset register and general ledger reconciliation
- Revaluation surplus under IAS 16
- Applying depreciation methods
Authoritative references
- IFRS Foundation: IAS 16 Property, Plant and Equipment
- IFRS Foundation: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
- ACCA: Adjustments to financial statements
Practical takeaway
A reliable disposal starts with the exact asset record. Establish the correct date, update depreciation, determine carrying amount, remove cost and accumulated depreciation, record actual consideration and recognise only the resulting gain or loss. Complete the process by updating the register and reconciling the transaction to supporting evidence and the general ledger.