How to record the disposal of revalued non-current asset?


Revalued non-current asset is the one that has undergone revaluation and now that asset is now measured on revaluation basis instead of historical cost basis. To learn more about revaluation model consult our IAS 16 – Property Plant and Equipment resources page.

The accounting treatment of disposal of asset that is carried on revaluation basis is not very different from the disposal of asset that is carried on historical cost basis. The only difference arises if entity has revaluation surplus on the related asset AND entity chose to transfer revaluation surplus to retained earnings. To learn how the treatment of disposal under two technique is different read What is the accounting treatment for sale of fixed asset?

Lets understand the whole process with one example. Suppose PakAccountants Plc has a building carried at 200,000 in the books of accounts having connected accumulated depreciation of 75,000 and a revaluation surplus of 60,000. PakAccountants sold this asset for 230,000.

Usual practice to record sale or disposal of non-current asset is done by opening a temporary account named Disposal A/c. The accounting is done in following steps:

  1. transfer the asset to disposal account
    Debit: Disposal account 200,000
    Credit: Building account 200,000
  2. transfer the accumulated depreciation of related asset to disposal account
    Debit: Accumulated depreciation account 75,000
    Credit: Disposal account 75,000
  3. record the consideration received in the disposal account
    Debit: Cash account 230,000
    Credit: Disposal account 230,000
  4. close the balance in disposal account by transferring it to profit or loss (income statement)
    In T-account we can easily calculate the balance, however we can also measure it easily by comparing the carrying value with disposal consideration. In our example the carrying value is 125,000 (200,000 – 75,000) and consideration received is 230,000. As consideration received is higher than carrying value by 105,000 (230,000 – 125,000). This gain on disposal is recorded by making following journal entry:
    Debit: Disposal account 105,000
    Credit: Profit or loss account 105,000
  5. if the entity chose to treat existing revaluation surplus then transfer the related balance from revaluation surplus account directly to retained earnings. However, this is an optional step and entity may chose not to transfer revaluation surplus and keep it under equity.
    Debit: Revaluation surplus account 60,000
    Credit: Retained earnings account 60,000