What is the classification of a loss on disposal in the statement of profit or loss?

A loss on disposal is classified as an expense in the statement of profit or loss. This is because the loss represents a decrease in the value of the entity’s resources as a result of selling an asset for less than its carrying value.

When an asset is disposed of, if the proceeds from the disposal are lower than the asset’s book value (the amount at which the asset is recorded on the balance sheet), a loss is incurred. This loss needs to be recognized in the financial statements as it reflects the economic reality of the company’s operations. Including it as an expense accurately impacts the overall profitability reported in that period, reducing net income.

The other classifications do not capture the nature of a loss on disposal. An asset refers to resources owned by the entity, income represents revenue generated, and liabilities refer to obligations owed to external parties. All these classifications do not align with the concept of a loss incurred during the disposal transaction. Hence, categorizing it as an expense provides a clear view of the financial impact from such disposals in the statement of profit or loss.