Derecognition refers to the removal of assets and liabilities from a company's balance sheet. This occurs when an asset is disposed of, reaches the end of its useful life, or under certain financial conditions. It is crucial for off-balance-sheet finance and is guided by Section 17 of the Financial Reporting Standard in the UK and Republic of Ireland, as well as International Accounting Standard 39 and International Financial Reporting Standard 7.
Off-Balance-Sheet Finance involves the use of leased assets instead of owned buildings and equipment to minimize required capital and mitigate risks associated with asset obsolescence.
Recognition involves the inclusion of an accounting item into the financial statements of an organization. It is essential for correctly reporting revenue and expenditure items, as well as properly handling off-balance-sheet finance.
