CFA Level I · CFA Level I Exam · Analysis of Long-Term Assets
Under IFRS, an entity sells an item of property, plant and equipment for more than its carrying amount. The difference between the net disposal proceeds and the carrying amount is most likely reported as:
The excess of net disposal proceeds over carrying amount is a gain recognised in profit or loss under IFRS. Derecognition gains and losses on property, plant and equipment go through the income statement, not directly to retained earnings or against other asset costs.
- Aa gain in profit or lossCorrect
- Ban adjustment to retained earnings only
- Ca reduction in the cost of remaining equipment
Explanation
IFRS requires the gain or loss on derecognition of PP&E, being net disposal proceeds minus carrying amount, to be recognised in profit or loss. It is not taken directly to equity or netted against other assets' costs.
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