When an entity exchanges a non-monetary asset for another non-monetary asset, the accounting treatment depends on whether the transaction has commercial substance. A transaction has commercial substance if the configuration of the future cash flows of the asset received differs significantly from the cash flows of the asset transferred.

Gain / Loss = Fair Value of Asset Given Up − Carrying Amount of Asset Given Up

An asset must be derecognized from the balance sheet upon disposal or when no future economic benefits are expected from its use or disposal.

Involuntary conversions occur when assets are destroyed by disasters (e.g., fires, floods) or expropriated by government action. The accounting treatment requires the entity to recognize the resulting gain or loss in profit or loss for the period, calculated as the difference between any net insurance or condemnation proceeds received and the carrying amount of the destroyed asset.

Any insurance reimbursement claims can only be recognized as an asset when receipt of the compensation becomes virtually certain.