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Derecognition (retirement and disposal)
If an entity rents some assets and then ceases to rent them, the assets should be transferred to inventories at their carrying amounts as they become held for sale in the ordinary course of business.
what does this means? according to my understanding, for example, an entity rent a machinery from another entity and when the entity ceases to rent it, it would be classified as inventory? But the machinery rented not belong to the entity, why the entity can classify it as inventory?
The verb “to rent” can apply to both the person that owns and rents out the asset and also to the person that rents the asset from the owner.
Ah! The wondrous beauty of the English language 🙂
In the above context, we’re looking at the owner that used to rent out the asset and has now stopped renting it. it’s brought back and is now available for sale so instead of generating rental income, it’s going to be sold and hopefully generate a profit
Better?
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