Non-current assets held for sale and discontinued operations (IFRS 5)
Last Updated: November 5, 2012 (Level A)
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This IFRS applies to assets or asset disposal groups which are held for sale and with the presentation and disclosure of discontinued operations.
Individual assets must be non-current assets. Asset disposal groups are groups of assets, possibly with directly associated liabilities in a single transaction. This may be a group of cash-generating units, a single cash-generating unit or part of a cash-generating unit. The asset disposal group may include any assets and liabilities including current ones and must be measured by this IFRS.
Classification of non-current assets as held for sale or held for distribution to owners
The conditions below should be met before the end of reporting period, if it’s after the reporting period but before the authorization date then disclosure is only necessary. A non-current asset or disposal group shall be classified as held for sale (or distribution to owners) if:
- Its carrying amount will be recovered through the sale
- Must be available for immediate sale in current condition and the sale must be highly probable
- Management must have a plan to sell
- Active program to locate a buyer with the plan having been initiated
- Asset must be actively marketed for sale at a reasonable price
- The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification
- Certain events which occur out of the entities control may prolong this
- When an asset or disposal group is acquired exclusively for disposal the entity must classify it as an asset held for sale as long as the one-year condition above is met.
Measurement of assets held for sale
Measured at the lower of:
- Carrying amount
- Fair value less costs to sell (or distribute to owners)
Cost to sell = The incremental costs directly attributable to the disposal of an asset excluding financing and income tax expense.
When the sale is expected to occur beyond a year, the present value must be calculated with the operations impact going to financing cost.
Recognition of impairment losses and reversals:
- Recognize impairment loss for any initial or subsequent write-down to fair value less costs to sell
- Recognize gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.
- Do not amortize assets held for sale. Interest and other expenses related to the liabilities shall continue to be recognized.
Changes to a plan of sale
If the entity had previously classified the asset or disposal group as held for sale but the criteria are no longer met then it should cease classifying the asset as held for sale.
The asset shall be re-measured as the lower of:
- Carrying amount before the asset or disposal group was classified as held for sale, adjusted for any amortization or revaluations that would have been recognized if the asset had not been classified held for sale originally. And
- Recoverable amount at the date of the subsequent decision not to sell.
Presentation and Disclosure
A component of an entity is a distinct set of operations and cash flows that can be clearly measured separately from the rest of the entity for financial reporting purposes.
A discontinued operation is a component of an entity that has either been disposed of or is held for sale and meets the following conditions:
- Represents a separate major business line or geographic area, or
- Part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
- A subsidiary acquired solely with a view of resale.
- Single amount on the Statement of Comprehensive Income which is:
- Post tax profit or loss of discontinued operations
- Post tax gain or loss recognized on the measurement to fair value less cost to sell or on the disposal of the assets or disposal groups constituting the discontinued operation.
- A breakdown of the single amount into:
- Revenue, expenses and pre-tax profit or loss of discontinued operations
- Related income tax expenses (IAS 12)
- Gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal groups constituting the discontinued operations.
- Any related tax expenses as required by IAS 12.
- Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be classified separately in discontinued operations.
- When reclassifying from held for sale to not held for sale, the amounts previously recorded in discontinued operations shall be reclassified and included in income from continuing operations for all periods presented.
- The entity shall show separately assets/liabilities of a disposal group or assets held for sale on the Balance Sheet and should not be presented as offsetting each other.