## De-recognition of PPE
### When to De-recognize
Remove a PPE item from the Balance Sheet when:
1. The asset is disposed of (sold, scrapped, donated), OR
2. No future economic benefits are expected from its use or disposal
---
### Gain or Loss on De-recognition
```
Gain / Loss = Net Sale Proceeds − Carrying Amount at date of disposal
```
- Gain → Credited to P&L
- Loss → Debited to P&L
---
### Treatment of Revaluation Reserve (RR) on De-recognition
| Item | Treatment |
|---|---|
| Revaluation Reserve balance | Transferred directly to Retained Earnings (RE) |
| Route | NOT through P&L — direct equity transfer |
| Amount | The entire remaining RR balance related to the asset |
> The gain/loss on sale is computed on CA (post-revaluation) vs. sale price and goes entirely to P&L. The RR is a separate, parallel entry to Retained Earnings.
---
### Step-by-Step Illustration (₹ figures)
Day 1: PPE Cost ₹2,50,00,000 | Life 10 years | Annual Depreciation ₹25,00,000
After 2 Years:
| Amount | |
|---|---|
| Depreciation (2 yrs) | ₹50,00,000 |
| CA at beginning of Year 3 | ₹2,00,00,000 |
| Fair Value at beginning of Year 3 | ₹3,00,00,000 |
| Revaluation Gain → Revaluation Reserve | ₹1,00,00,000 |
Revised Depreciation: ₹3,00,00,000 ÷ 8 remaining years = ₹37,50,000/yr
CA at end of Year 5 (3 years at revised rate: Yr 3, 4, 5):
= ₹3,00,00,000 − ₹1,12,50,000 = ₹1,87,50,000
---
### On Sale at End of Year 5
| Case A | Case B | |
|---|---|---|
| Selling Price | ₹1,12,50,000 | ₹42,50,000 |
| Carrying Amount | ₹1,87,50,000 | ₹1,87,50,000 |
| Loss to P&L | ₹75,00,000 | ₹1,45,00,000 |
| RR transferred to RE | ₹1,00,00,000 | ₹1,00,00,000 |
> In both cases, the full Revaluation Reserve is transferred to Retained Earnings regardless of the selling price. The RR is never used to absorb the P&L loss.
---
### Journal Entries — Case A
Step 1 — Record Sale:
Cash/Bank A/c Dr 1,12,50,000
Loss on Sale (P&L) Dr 75,00,000
To PPE A/c (CA) 1,87,50,000
Step 2 — Transfer RR to Retained Earnings:
Revaluation Reserve A/c Dr 1,00,00,000
To Retained Earnings A/c 1,00,00,000