When a company incurs a loss on the disposal of an asset, it is reported in the income statement of the financial statements. The loss is recognized as an expense and is included in the net income for the period in which the asset was disposed of.
To be specific, the loss on disposal is reported separately in the income statement, usually under the headings “Non-operating expenses” or “Other expenses”. The amount of the loss is determined by deducting the disposal value from the asset’s carrying value, which is the original cost minus accumulated depreciation.
It is worth noting that if the disposal value exceeds the carrying value, a gain on disposal is recognized instead, which is reported separately in the income statement under “Non-operating income” or “Other income”.
Reporting both gains and losses on disposal of assets is important as it provides an insight into the company’s financial position and performance. It also enables stakeholders to assess the company’s asset management practices.