Normally, when disposing assets, the company’s management should have the aim to sell it. This way you simply don’t make a loss or get rid of an obsolete asset, but also earn something in the process. There is a really good chance that someone else may have use for it as it’s not that old for them, suits their business strategies more or they want the spare parts of it. Whatever the reason, but the party selling the asset, gets the proceeds which obviously is good in essence.

So, when the management has decided to sell the asset and in case there is a buyer, the asset is traded. It changes owners and as such the financial statements of the seller also change. It no longer possesses the asset and as such, it should also be derecognized from the financial statements.

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As part of everyday operations some assets become obsolete, outdated, break or simply don’t respond to company’s needs or strategic development plans anymore. What happens then is that the asset is either sold, destroyed, given away or taken apart for any possible spare parts. Either way it will not exist in its original state and nature in the company.

In accounting certain entries should obviously done as a result also. In reality the asset is more or less non-existing so in accounting it should also be written off from the balance sheet. The balances usually in financial statements relating to assets are: property, plant and equipment class in cost, accumulated depreciation and depreciation of the period (in the income statement). Now that the asset is decided by the management to be disposed, the asset is disposed from the balance sheet from this point onwards.

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