How are losses recognized when measuring assets held for sale?

When measuring assets held for sale, losses are recognized directly in the income statement. This approach is consistent with the accounting principle that emphasizes matching expenses with revenues in the period they occur. When an asset is classified as held for sale, it is typically measured at the lower of its carrying amount or its fair value less costs to sell.

If the fair value less costs to sell is less than the carrying amount of the asset, a loss is recognized to reflect this decrease in value. Recognizing the loss in the income statement ensures that the financial statements accurately reflect the current economic realities surrounding the asset, providing users with relevant information regarding the company’s financial performance.

This treatment is in line with accounting standards that require immediate recognition of losses that provide a better representation of the financial position and performance for stakeholders, rather than deferring them to future periods, impacting equity, or being contingent on specific sale conditions.