Demolition of assets

Can anybody help me please - I am trying to establish how to treat an asset which we have demolished. I need to confirm how we account for this please. We had an issue in last years audit, which was not material, and it has left a question.

Should the asset be treated as a disposal or should the asset be depreciated up to the point of demolition (i.e. 4 months of the year) and then the remainder of the NBV impaired out to bring the NBV to zero? My question then would be if the latter is the case, how does the GBV and accumulated depreciation/impairment ever get written out? As the asset no longer exists.

We have two assets this year, one which is being replaced and one which is not.

Any help on this would be much appreciated! Thank you in advance
  • There is a useful example in the code of practice guidance notes. Where a component is replaced this is written out with a loss on disposal posted as you would do for other asset disposals. The component would be the whole building.

    Depending on your accounting policy you may depreciate in the year up to demolition. We had a similar scenario with a school that was demolished and rebuilt. Effectively the whole asset balance including RR was written out on demolition.
  • We would treat as a derecognition/disposal.
  • We would treat it as a derecognition in the accounts and use the NBV in the profit/loss calculation for the year.
  • Thank you everybody for your help
  • Following on from NB''s question on this, I also have a few OLB that have been demolished and I was considering impairing the building and leaving only the land value but was also not sure how I will eventually get rid of the GBV and accumulated impairment from the FAR. If you derecognise/dispose of the asset, what do you do with the land? Do you derecognise/dispose just the building? cos in my case, we still own the land.
  • We record the land and buildings as separate components of the asset in the asset register (for depreciation purposes) so are able to just derecognise the buildings element and leave the land.
  • We also record the land and buildings as separate components of the asset in the asset register (for depreciation purposes) so I will just derecognise the building element and leave the land as suggested. I also have some other buildings that my predecessor had impaired instead of derecognising still in the FAR. I will reverse the impairment on them and derecognise instead. Thanks for your guidance.
  • Thanks again everyone. We also record in the same way (i.e. split between land and building) and it is only the building element we are to de recognise. However, we have approached the auditors again to say that this is how we will be dealing with it this year (further to their query) and they have asked for the relevant section of the CIPFA guidance notes for them to refer to that says this is the way. Can anybody help with this please? Thanks
  • In relation to this we would not dispose of the land as we would argue there is future economic benefits from the land until we sell or some other event would render no future possible use to the authority. If the building is demolished it no longer exists so cannot have any economic benefit so is derecognised.

    We had this debate a couple of years ago and used the very same argument. The extract from the code is as follows:

    Derecognition
    4.1.2.48 The carrying amount of an item of property, plant and equipment shall be derecognised:
    „„ on disposal, or
    „„ when no future economic benefits or service potential are expected from its use or
    disposal.
  • To make matters interesting, we might have an asset which could be half-demolished as at 31/3/18. In this case I suppose impairment rather than derecognition would be the approach?