Derecognition
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General Concepts
Derecognition is the removal of a right-of-use asset and lease liability from the balance sheet when a lease terminates, expires, or is cancelled. Any difference between the carrying amounts of the derecognized asset and liability is recognized as a gain or loss in the income statement.
Why it matters
Derecognition is straightforward when a lease simply expires at the end of its term. the ROU asset and lease liability should both be zero. However, early terminations, partial terminations, and modifications that reduce scope require careful calculation of the gain or loss on derecognition.
How Arvexi handles this
Arvexi handles lease terminations and partial scope reductions by calculating the derecognition amounts, recording any gain or loss, and generating the appropriate journal entries to remove the lease from the balance sheet.