Advanced Accounting · AS 10 Property, Plant and Equipment

AS 10: Retirement, Disposal, Derecognition and Disclosures of PPE

Updated 4 October 2026 · Fact-checked

Under AS 10, you remove an item of PPE from the books on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss is net disposal proceeds minus carrying amount, shown in the statement of profit and loss. Assets retired from active use and held for disposal are stated at the lower of carrying amount and net realisable value.

Understand Retirement, Disposal, Derecognition and Disclosures

An asset sits in your balance sheet only while it is expected to give future economic benefits. When it is sold, scrapped or otherwise given up, those benefits end. So you stop showing it. This is derecognition.

AS 10 says the carrying amount of an item of PPE should be eliminated from the financial statements on disposal, or when no future economic benefits are expected from its use or disposal. The difference between the net disposal proceeds and the carrying amount is a gain or loss. You recognise it in the statement of profit and loss. Carrying amount is cost less accumulated depreciation less impairment loss, if any.

Retirement is different from disposal. An asset may be retired from active use (the machine is idle) and kept for sale. It is not yet disposed of. AS 10 says such an item is stated at the lower of its carrying amount and net realisable value. Any write-down is recognised as a loss in the statement of profit and loss. You show the item separately from PPE in use and measure it at the lower figure.

Gains or losses on disposal are not revenue. Do not mix them into sales. Also, the amount for the part replaced matters: when you replace a component and capitalise the new part, you derecognise the carrying amount of the old part, even if it was not separately depreciated. If its carrying amount cannot be determined, you may use the cost of the new part as an indication of what the old part cost.

Finally, AS 10 requires disclosures: the basis of measurement, depreciation methods, useful lives or rates, gross and net carrying amounts at the start and end of the period, and a reconciliation showing additions, disposals, acquisitions through amalgamations, increases or decreases from revaluations, impairment, depreciation and other movements. Revalued items need extra disclosures. Also disclose expenditure on account of assets under construction, and items retired from active use and held for disposal.

Key rules to remember

Gain or loss on disposal: Gain or (Loss) = Net disposal proceeds − Carrying amount; Net disposal proceeds are sale price less costs of disposal. Take the result to the statement of profit and loss.
Carrying amount: Carrying amount = Cost − Accumulated depreciation − Impairment loss; Depreciate up to the date of sale before computing the gain or loss. For a revalued asset, the carrying amount includes the revalued amount. The treatment of any revaluation reserve is dealt with separately.
Asset retired from active use: Stated at lower of carrying amount and net realisable value; Show it separately from PPE in use. The write-down is a loss in profit and loss.
Derecognition trigger: Derecognise on disposal OR when no future economic benefits are expected from use or disposal; Both conditions are in AS 10. Do not wait for a sale if the asset is scrapped.

How to solve Retirement, Disposal, Derecognition and Disclosures questions

Use this order for any disposal or retirement question. It keeps the working visible and earns step marks.

1Read the date of sale or retirement and the accounting year-end. Note whether the asset was sold, scrapped or just retired from use.
2Compute depreciation up to the date of disposal. Prorate by months if the sale is mid-year.
3Find the carrying amount: cost less accumulated depreciation (including the current part-year) less any impairment.
4Find net disposal proceeds: sale price less costs of disposal. If it is scrapped, proceeds may be scrap value less removal cost.
5Compute gain or loss = net disposal proceeds − carrying amount. Label it clearly as profit or loss on disposal.
6If the asset is retired from active use but not sold, compare carrying amount with net realisable value. Write down to the lower figure.
7Pass the journal entries or ledger accounts: asset account, accumulated depreciation, bank, and profit or loss.
8Add a one-line disclosure or presentation note if the question asks for it.

Quickest way: Quick method for disposal and retirement questions

When to use it: Use it for MCQs and for the first pass in a written answer when time is short.

Write three numbers in a column: carrying amount, net proceeds, difference. Sign of the difference decides profit or loss.
For MCQs, check for the trap options: one that ignores the part-year depreciation, one that ignores disposal costs, and one that reverses the sign.
If the asset is merely retired and held for sale, pick the lower of carrying amount and NRV. Do not look for a sale price.
In written answers, start with a Disposal Account (Dr asset at cost and costs of sale; Cr accumulated depreciation and sale proceeds). The balancing figure is the profit or loss. State the AS 10 rule in one line first, then the working, then the conclusion.

Common mistakes in Retirement, Disposal, Derecognition and Disclosures

Ignoring depreciation from the start of the year to the date of sale.
Students take the opening carrying amount from the previous balance sheet and move on.
Fix: Always compute depreciation up to the date of disposal first, then find the carrying amount.
Using sale price instead of net disposal proceeds.
The question mentions dismantling or brokerage in a later line and it gets missed.
Fix: Deduct costs of disposal from the sale price before comparing with carrying amount.
Showing profit on sale of an asset as sales revenue.
Students think any sale is revenue.
Fix: Show it as a gain on disposal of PPE in the statement of profit and loss, separate from revenue from operations.
Continuing to show an asset retired from active use at its old carrying amount.
Students think only a sale triggers an adjustment.
Fix: Compare carrying amount with net realisable value and state at the lower. Show it separately from PPE in use.
Forgetting to derecognise the old component when a replacement is capitalised.
Students only add the new part to cost.
Fix: Remove the carrying amount of the replaced part. If unknown, the cost of the new part can be used as an indication of the old part's cost.
Writing disclosures as a generic list.
Students memorise headings without the reconciliation idea.
Fix: Remember the opening-to-closing reconciliation of gross and net carrying amounts with additions, disposals, depreciation and impairment, plus methods and useful lives.

Worked examples

Example 1

A machine bought on 1 April 2023 for ₹10,00,000 is depreciated at 10% per annum on straight line basis (no residual value). It is sold on 30 September 2025 for ₹7,20,000. Dismantling and selling costs paid are ₹20,000. The financial year ends on 31 March. Compute the profit or loss on sale.

Show the solution

Annual depreciation = 10% × ₹10,00,000 = ₹1,00,000.
Depreciation for 2023-24 and 2024-25 = ₹2,00,000.
Depreciation for 1 April 2025 to 30 September 2025 = ₹1,00,000 × 6 ÷ 12 = ₹50,000.
Accumulated depreciation at date of sale = ₹2,50,000.
Carrying amount = ₹10,00,000 − ₹2,50,000 = ₹7,50,000.
Net disposal proceeds = ₹7,20,000 − ₹20,000 = ₹7,00,000.
Loss = ₹7,00,000 − ₹7,50,000 = ₹(50,000).

Answer: Loss on sale of machine is ₹50,000, to be charged to the statement of profit and loss.

Example 2

On 31 March 2026, a plant with cost ₹8,00,000 and accumulated depreciation ₹5,00,000 is retired from active use and held for disposal. Its net realisable value is estimated at ₹1,80,000. How should it be presented and what is the effect on profit?

Show the solution

Carrying amount = ₹8,00,000 − ₹5,00,000 = ₹3,00,000.
Net realisable value = ₹1,80,000.
AS 10 requires an item retired from active use and held for disposal to be stated at the lower of carrying amount and net realisable value.
Lower figure = ₹1,80,000.
Write-down = ₹3,00,000 − ₹1,80,000 = ₹1,20,000, charged to the statement of profit and loss.
Journal: Loss on assets retired from active use Dr ₹1,20,000; To Plant (net) ₹1,20,000.
Present the plant separately at ₹1,80,000 and disclose it as retired from active use and held for disposal.

Answer: State the plant at ₹1,80,000 and charge a loss of ₹1,20,000 to profit and loss. Any later difference on actual sale is gain or loss on disposal.

Exam tips

Start every disposal answer with the AS 10 rule in one line, then the working. It earns provision marks and step marks.
In MCQs, check the date of sale first. Part-year depreciation is the most common trap.
Keep the Disposal Account format ready. It handles cost, depreciation, proceeds and costs of sale in one place.
For disclosure questions, list items in groups: measurement basis, depreciation, reconciliation, revaluation, retired assets. Do not write a long essay.
Show gain or loss under other income or other expenses as per Schedule III presentation, not under sales.

Practice questions from AS 10 Property, Plant and Equipment

Retirement, Disposal, Derecognition and Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Retirement, Disposal, Derecognition and Disclosures: frequently asked questions

How do you calculate profit on sale of PPE under AS 10?

Subtract the carrying amount from the net disposal proceeds. Carrying amount is cost less accumulated depreciation up to the date of sale and impairment, if any. A positive result is a gain and a negative result is a loss, both shown in profit and loss.

When is PPE derecognised under AS 10?

You derecognise it on disposal, or when no future economic benefits are expected from its use or disposal. So a scrapped asset is removed even if no buyer paid for it. The resulting gain or loss goes to the statement of profit and loss.

How is an asset retired from active use treated?

It is stated at the lower of its carrying amount and net realisable value. You show it separately from PPE in use. Any write-down is a loss in profit and loss.

What are the main disclosures required under AS 10?

You disclose the measurement bases, depreciation methods, useful lives or rates, and gross and net carrying amounts at the start and end of the period. A reconciliation with additions, disposals, depreciation, impairment and revaluation changes is needed. Revalued assets and items retired from active use also need disclosure.