Derecognition is the process of removing an item from the financial statements of an entity. According to the conceptual framework for financial reporting, derecognition refers to the process of removing an item from the statement of financial position, statement of comprehensive income, or statement of changes in equity, depending on the nature of the item.

Derecognition may occur for a variety of reasons, such as:

1. The item has been fully realized, consumed, or sold.
2. The rights or obligations associated with the item have expired or been extinguished.
3. The entity has transferred the rights or obligations associated with the item to another party.
4. The item no longer meets the recognition criteria.

When an item is derecognized, any remaining amount associated with the item is removed from the financial statements. For example, if an asset is derecognized, any remaining carrying amount of the asset is removed from the statement of financial position.

Overall, derecognition is an important aspect of financial reporting, as it allows entities to provide accurate and relevant information about their financial position and performance. By derecognizing items that are no longer relevant or applicable, entities can provide users with a clear understanding of their financial position and performance, which can help users make informed economic decisions.

Here is an example of derecognition:

Let's say a company has sold an item of equipment for $10,000, and has fully realized the value of the equipment. To derecognize the equipment from the statement of financial position, the company would record the following journal entry:

Cash (asset) $10,000

Equipment (asset) $10,000

By recording this journal entry, the company is removing the equipment from their financial statements and recognizing the cash received as a new asset. The carrying amount of the equipment is removed from the statement of financial position, as it is no longer applicable to the entity's financial position.

It is important to note that derecognition criteria may vary depending on the specific item being derecognized and the accounting standards being used. However, the principles of derecognition outlined in the conceptual framework generally apply to all financial reporting frameworks.