Financial Reporting · Tangible non-current assets
Disposal of Non-Current Assets: Profit or Loss on Disposal
Updated 11 October 2026 · Fact-checked
Profit or loss on disposal is the net proceeds less the asset's carrying amount at the date of disposal. Depreciate up to the disposal date first. Then remove cost and accumulated depreciation, record the proceeds, and take the difference to profit or loss. Any revaluation surplus on that asset moves to retained earnings.
Understand Disposal of Non-Current Assets
Under IAS 16, you derecognise an item of property, plant and equipment when you dispose of it, or when you expect no future economic benefits from its use or disposal. The gain or loss is the difference between the net disposal proceeds and the carrying amount. You show it in profit or loss. It is not revenue.
The carrying amount is cost (or revalued amount) less accumulated depreciation and any impairment, at the date of disposal. So you must charge depreciation for the part of the year the asset was held before you work out the gain or loss. Many students skip this and get the wrong answer.
To record a disposal, you take the asset out of the books. Credit the asset cost account. Debit the accumulated depreciation account. Debit cash or a receivable for the proceeds. The balancing figure is the profit (credit) or loss (debit). Many questions use a disposals account to collect these entries.
In a part-exchange, the dealer gives you an allowance against a new asset. The disposal proceeds of the old asset are its fair value. This is normally the trade-in allowance, unless the question says otherwise. The cost of the new asset is the cash paid plus that fair value. When the allowance is fair, this equals the list price. The list price is not necessarily the cost.
If the asset was revalued, the carrying amount is based on the revalued amount. The revaluation surplus relating to that asset is no longer needed when you sell it. IAS 16 lets you transfer it directly to retained earnings. This is a movement within equity. It does not go through profit or loss. The gain or loss in profit or loss is still based on carrying amount, not on original cost.
Key rules to remember
- Profit or loss on disposal
- Profit/(loss) = Net disposal proceeds − Carrying amount at disposal date
- Net proceeds are the sale price less selling costs. A positive result is a profit.
- Carrying amount at disposal
- Carrying amount = Cost (or valuation) − Accumulated depreciation up to disposal date
- Include depreciation for the part-year to the date of sale, if the entity's policy charges it.
- Disposal journal
- Dr Cash/receivable (proceeds); Dr Accumulated depreciation; Cr Asset at cost/valuation; balance to profit or loss
- A debit balance is a loss. A credit balance is a profit.
- Part-exchange
- Proceeds of old asset = Fair value of old asset (normally the trade-in allowance); Cost of new asset = Cash paid + Fair value of old asset
- Cash paid = Cost of new asset − Allowance holds only where the allowance equals the old asset's fair value. Otherwise use the fair value of the old asset as proceeds.
- Revaluation surplus on disposal
- Dr Revaluation surplus; Cr Retained earnings (surplus relating to the asset sold)
- Permitted by IAS 16. It is a reserves transfer and does not appear in profit or loss.
How to solve Disposal of Non-Current Assets questions
Use this order for any disposal question, whether it is a journal, a ledger account or a profit calculation.
- 1Find the carrying amount at the start of the year: cost or valuation less accumulated depreciation brought forward.
- 2Calculate depreciation for the year up to the disposal date. Use the months held, unless the question says otherwise.
- 3Subtract that depreciation to get the carrying amount at the date of disposal.
- 4Work out net proceeds. Deduct selling costs. For a part-exchange, use the fair value of the old asset, which is normally the trade-in allowance.
- 5Subtract the carrying amount from net proceeds. Label the answer clearly as profit or loss.
- 6Write the journal: remove cost and accumulated depreciation, record cash or allowance, and post the balancing figure to profit or loss.
- 7If the asset was revalued, transfer its revaluation surplus to retained earnings, and state that this is not in profit or loss.
Quickest way: Disposals account shortcut
When to use it: Use this for objective test questions where you only need the profit or loss figure.
- Write three numbers: net proceeds, cost or valuation, accumulated depreciation to date of sale.
- Compute the carrying amount in one line: cost less accumulated depreciation, including current-year charge.
- Subtract the carrying amount from the proceeds. The sign gives profit or loss.
- Check the options for traps: figures that ignore the part-year charge, or that use cost instead of carrying amount.
- For a revalued asset, use the valuation figure and ignore original cost for the profit calculation.
Common mistakes in Disposal of Non-Current Assets
Forgetting depreciation for the year of disposal.
The accumulated depreciation figure is given as at the last year end, so it looks complete.
Fix: Always ask: when was the asset sold? Add depreciation from the last year end to that date before finding carrying amount.
Calculating the gain using cost instead of carrying amount.
Cost is the first number in the question and is easy to grab.
Fix: Profit or loss is always proceeds less carrying amount. Cost is only one part of that.
Posting the revaluation surplus transfer through profit or loss.
Students think any gain on a revalued asset must be in profit or loss.
Fix: The profit or loss on disposal uses carrying amount. The old surplus moves from the revaluation surplus to retained earnings within equity.
Recording the new asset at the cash paid in a part-exchange.
The cash payment is the only new cash flow, so it seems to be the cost.
Fix: Record the new asset at the cash paid plus the fair value of the old asset. This equals the list price only where the allowance equals that fair value. If it does not, use the fair value as the proceeds.
Ignoring selling costs.
Costs appear in a later sentence and are missed.
Fix: Underline every cost in the question. Deduct selling costs from proceeds before comparing with carrying amount.
Showing the profit on disposal within revenue.
Students see it as income from selling something.
Fix: Show it as a gain or loss in profit or loss, usually within other income or operating expenses. It is not revenue under IFRS 15.
Worked examples
Example 1
Delta bought a machine on 1 January 20X1 for ₹10,00,000. It depreciates machines at 20% a year on cost, charged monthly up to the date of sale. The machine was sold on 31 March 20X4 for ₹3,50,000. The year end is 31 December. Calculate the profit or loss on disposal.
Show the solution
- Annual depreciation = 20% × ₹10,00,000 = ₹2,00,000.
- Years 20X1 to 20X3 are three full years: 3 × ₹2,00,000 = ₹6,00,000.
- Depreciation for 1 January to 31 March 20X4 is 3 months: ₹2,00,000 × 3 ÷ 12 = ₹50,000.
- Accumulated depreciation at disposal = ₹6,00,000 + ₹50,000 = ₹6,50,000.
- Carrying amount = ₹10,00,000 − ₹6,50,000 = ₹3,50,000.
- Profit or loss = ₹3,50,000 − ₹3,50,000 = nil.
Answer: There is no profit or loss on disposal. Carrying amount and proceeds are both ₹3,50,000.
Example 2
Sigma holds land and buildings at a revalued amount. A building was revalued to ₹40,00,000 at the last year end, giving a revaluation surplus of ₹6,00,000 relating to it. It is sold on the first day of the new year, before any further depreciation arises, for ₹41,50,000. Selling costs of ₹50,000 are paid separately. Show the profit on disposal and the treatment of the surplus.
Show the solution
- Carrying amount at disposal = ₹40,00,000, the revalued amount, as no further depreciation has been charged.
- Net proceeds = ₹41,50,000 − ₹50,000 = ₹41,00,000.
- Profit on disposal = ₹41,00,000 − ₹40,00,000 = ₹1,00,000, shown in profit or loss.
- Journal for the sale: Dr Cash ₹41,50,000; Cr Building ₹40,00,000; Cr Profit on disposal ₹1,50,000.
- Journal for the selling costs: Dr Profit on disposal ₹50,000; Cr Cash ₹50,000.
- Net profit on disposal = ₹1,50,000 − ₹50,000 = ₹1,00,000. Net cash received = ₹41,50,000 − ₹50,000 = ₹41,00,000.
- Transfer the surplus: Dr Revaluation surplus ₹6,00,000; Cr Retained earnings ₹6,00,000.
- The transfer is within equity. It is not part of profit or loss and is not included in the ₹1,00,000.
Answer: Profit on disposal is ₹1,00,000 in profit or loss, after deducting selling costs of ₹50,000. The ₹6,00,000 revaluation surplus is transferred directly to retained earnings.
Exam tips
- In Section C, set out a disposals account or a short calculation with clear labels. Method marks are awarded even if one figure is wrong.
- In objective test questions, expect distractors built from the usual errors: no part-year depreciation, cost used instead of carrying amount, or selling costs ignored. Check your answer against each.
- For part-exchange, read whether the question gives a fair value for the old asset. If it differs from the allowance, use that fair value as the proceeds of the old asset, and add it to the cash paid to get the cost of the new asset.
- If an asset is revalued, say in your answer that the surplus transfer is a reserves movement and is not in profit or loss. This earns a mark.
- Write the sign clearly: put 'profit' or 'loss' next to your figure so the marker does not have to guess.
Practice questions from Tangible non-current assets
Disposal of Non-Current Assets in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Disposal of Non-Current Assets: frequently asked questions
How do you calculate profit or loss on disposal of PPE?
Take the net sale proceeds and subtract the carrying amount at the disposal date. Carrying amount is cost or valuation less accumulated depreciation, including depreciation to the date of sale. A positive result is a profit and a negative result is a loss.
What happens to the revaluation surplus when a revalued asset is sold?
The surplus relating to that asset is no longer needed. IAS 16 allows you to transfer it directly to retained earnings. It does not pass through profit or loss.
How is a part-exchange recorded?
Treat the fair value of the old asset as its proceeds. This is normally the trade-in allowance unless the question says otherwise. Find the profit or loss in the usual way. Record the new asset at the cash paid plus that fair value.
Is the profit on disposal revenue?
No. IAS 16 requires the gain or loss to be in profit or loss, but it is not revenue under IFRS 15. It is usually shown as other income or within operating expenses.