An asset is derecognized upon its disposal, or when no future economic benefits can be expected from its use or disposal. Derecognition can arise from a variety of events, such as an asset’s sale, scrapping, or donation.

Accounting for an Asset Derecognition

A gain or loss can be recognized from an asset’s derecognition, though a gain on derecognition cannot be recorded as revenue. The gain or loss on derecognition is calculated as the net disposal proceeds, minus the asset’s carrying value. For example, a company disposes of a $100,000 machine, after owning it for seven years, and sells it for $35,000 in cash. It has already recorded $70,000 of depreciation expense. The entry is as follows: