Ind AS 38: Derecognition, Disclosures and Differences from IAS 38

Understand Derecognition, Disclosures and Differences from IAS 38

Key rules to remember

Gain or loss on derecognition

Gain / (Loss) = Net disposal proceeds − Carrying amount

Net proceeds are the transaction price (Ind AS 115 basis) less costs of disposal. Recognise in profit or loss, not in revenue. This does not apply to a sale and leaseback, which Ind AS 116 governs.

Carrying amount

Carrying amount = Cost (or revalued amount) − Accumulated amortisation − Accumulated impairment

Amortise up to the date of disposal first, then compute gain or loss.

Date of disposal

Date buyer obtains control (Ind AS 115 criteria)

Not the date of agreement or payment unless control passes then.

Replaced part

Derecognise carrying amount of replaced part; if not determinable, use cost of replacement as indication

Then capitalise the new part if recognition criteria are met.

Revenue-based amortisation (service concession)

Amortisation = Cost × (Revenue of the period ÷ Total expected revenue over the concession)

Ind AS 38 permits this for intangible assets arising from service concession arrangements within Appendix D to Ind AS 115, i.e. the right to charge users. The method must reflect the pattern of consumption of benefits. In practice you need a reliable estimate of total expected revenue to apply the formula. This is a practical requirement, not a condition stated in Ind AS 38.

Amortisation stops

Stop at the earlier of: date classified as held for sale (Ind AS 105), or date derecognised

Retirement from active use alone does not stop amortisation.

How to solve Derecognition, Disclosures and Differences from IAS 38 questions

1. 1Identify the trigger: sale, retirement with no expected benefits, or replacement of a part. If it is a sale and leaseback, apply Ind AS 116 instead of the general gain or loss computation.
2. 2Fix the date of derecognition using transfer of control, and check whether the asset was held for sale earlier.
3. 3Amortise the asset up to that date using the stated method and useful life. Add any impairment already recognised.
4. 4Compute carrying amount = cost (or revalued amount) − accumulated amortisation − impairment.
5. 5Compute net proceeds: transaction price (discount deferred consideration to cash price equivalent) less costs of disposal.
6. 6Gain or loss = net proceeds − carrying amount. Show it in profit or loss, not as revenue. A revalued amount arises only if the revaluation model was used, which needs an active market for the asset. If it was used, any revaluation surplus in equity may be transferred directly to retained earnings when the asset is derecognised. It is not routed through profit or loss.
7. 7For disclosure parts, list by class: lives, methods, gross and accumulated amounts, reconciliation, indefinite-life reasons, restrictions, commitments, revaluation details and R&D expense.
8. 8For comparison parts, state the IAS 38 position, the Ind AS 38 position and the reason, using the service concession revenue-based method as the lead point.

Quickest way: Three-line disposal check

Common mistakes in Derecognition, Disclosures and Differences from IAS 38

• Showing the gain on sale of an intangible asset as revenue.

  Students link any income from an asset with sales revenue.

  Fix: State that Ind AS 38 says such gains are not classified as revenue. Recognise the gain in profit or loss.

• Using gross proceeds and ignoring costs of disposal.

  The word proceeds is read as the sale price.

  Fix: Always deduct directly attributable selling costs to reach net disposal proceeds.

• Stopping amortisation when the asset becomes idle.

  Confusion with the idea that unused assets earn nothing.

  Fix: Continue amortising until the asset is classified as held for sale or derecognised, whichever is earlier. Idle status may trigger an impairment test instead.

• Taking the full year of amortisation in the year of sale.

  Students copy the annual charge without checking the sale date.

  Fix: Amortise only up to the date of disposal, using the control transfer date.

• Ignoring the carrying amount of a replaced part.

  Students only capitalise the new part.

  Fix: Derecognise the replaced part's carrying amount, and recognise any resulting gain or loss in profit or loss. Use replacement cost as an indication of the replaced part's cost if its carrying amount cannot be determined.

• Saying Ind AS 38 and IAS 38 are identical, or ignoring the revenue-based method for service concession assets.

  Notes often list differences briefly and students skip them.

  Fix: Remember the carve-out: Ind AS 38 allows revenue-based amortisation for intangible assets from service concession arrangements within Appendix D to Ind AS 115 (the right to charge users), reflecting the pattern of consumption of benefits. Link it to toll road cases.

Worked examples