IFRS 5 Non-current assets held for sale and discontinued operations

12-09-17 Grace Maombe 1 comment

IFRS 5 requires assets ‘held for sale’ to be presented separately in the statement of financial position.

The results of discontinued operations should be presented separately in the statement of profit or loss

and other comprehensive income.

Classification of assets held for sale

A non-current asset (or disposal group) should be classified as held for sale if its carrying amount will be

recoveredprincipally through a sale transaction rather than through continuing use. A number of

detailed criteria must be met:

(a) The asset must be available for immediate sale in its present condition.

(b) Its sale must be highly probable (ie, significantly more likely than not).

For the sale to be highly probable, the following must apply.

(a) Management must be committed to a plan to sell the asset.

(b) There must be an active programme to locate a buyer.

(c) The asset must be marketed for sale at a price that is reasonable in relation to its current fairvalue.

(d) The sale should be expected to take place within one year from the date of classification.

(e) It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

 

An asset (or disposal group) can still be classified as held for sale, even if the sale has not actually taken

place within one year. However, the delay must have been caused by events or circumstances beyond theentity’s control and there must be sufficient evidence that the entity is still committed to sell the asset ordisposal group. Otherwise the entity must cease to classify the asset as held for sale.

If an entity acquires a disposal group (eg, a subsidiary) exclusively with a view to its subsequent disposal

it can classify the asset as held for sale only if the sale is expected to take place within one year and it is

highly probable that all the other criteria will be met within a short time (normally three months).

 

An asset that is to be abandoned should not be classified as held for sale. This is because its carrying

amount will be recovered principally through continuing use. However, a disposal group to be abandoned

may meet the definition of a discontinued operation and therefore separate disclosure may be required

 

 

Measurement of assets held for sale

 

Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date.

Costs to sell: the incremental costs directly attributable to the disposal of an asset (or disposal group),

excluding finance costs and income tax expense.

.

A non-current asset (or disposal group) that is held for sale should be measured at the lower of its

carrying amount and fair value less costs to sell. Fair value less costs to sell is equivalent to net

realisable value.

 

An impairment loss should be recognised where fair value less costs to sell is lower than carrying amount.

Non-current assets held for sale should not be depreciated, even if they are still being used by the entity.

A non-current asset (or disposal group) that is no longer classified as held for sale (for example,

because the sale has not taken place within one year) is measured at the lower of:

 

(a) Its carrying amount before it was classified as held for sale, adjusted for any depreciation that

would have been charged had the asset not been held for sale

(b) Its recoverable amount at the date of the decision not to sell

 

Presenting discontinued operations

 

Discontinued operation: a component of an entity that has either been disposed of, or is classified as heldfor sale, and:

(a) Represents a separate major line of business or geographical area of operations

(b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical

area of operations, or

(c) Is a subsidiary acquired exclusively with a view to resale

 

An entity should present and disclose information that enables users of the financial statements to

evaluate the financial effects of discontinued operations and disposals of non-current assets or disposal

groups.

 

An entity should disclose a single amount in the statement of profit or loss and other comprehensive

incomecomprising the total of:

 

(a) The post-tax profit or loss of discontinued operations and

(b) The post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the

disposal of the assets or disposal group(s) constituting the discontinued operation.

An entity should also disclose an analysis of the above single amount into:

(a) The revenue, expenses and pre-tax profit or loss of discontinued operations

(b) The related income tax expense

(c) The gain or loss recognised on the measurement to fair value less costs to sell or on the disposal

of the assets or the discontinued operation

(d) The related income tax expense

 

This may be presented either in the statement of profit or loss and other comprehensive income or in the

notes. If it is presented in the statement of profit or loss and other comprehensive income it should be

presented in a section identified as relating to discontinued operations, ie separately from continuing

operations. This analysis is not required where the discontinued operation is a newly acquired subsidiary

that has been classified as held for sale.

 

An entity should disclose the net cash flows attributable to the operating, investing and financing activitiesof discontinued operations. These disclosures may be presented either on the face of the statement ofcash flows or in the notes.

Gains and losses on the remeasurement of a disposal group that is not a discontinued operation but is

held for sale should be included in profit or loss from continuing operations.

 

 

 

 

 

 

Illustration

The following illustration is taken from the implementation guidance to IFRS 5. Profit for the year from

discontinued operations would be analysed in the notes.

 

XYZ GROUP

STATEMENT OF PROFIT OR LOSS AND OTEHR COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 20X2

 

                                                                                                                   20X2                   20X1

Continuing operations                                                                                $’000                  $’000

Revenue                                                                                                       X                           X

Cost of sales                                                                                                (X)                                (X)

Gross profit                                                                                                   X                                X

Other income                                                                                         X                                  X

Distribution costs                                                                                  (X)                                (X)

Administrative expenses                                                                        (X)                                (X)

Other expenses                                                                                     (X)                                (X)

Finance costs                                                                                       (X)                                (X)

Share of profit of associates                                                                   X                                  X

Profit before tax                                                                                    X                                 X

Income tax expense                                                                              (X)                                (X)

Profit for the year from continuing operations                                           X                                  X

 

Discontinued operations

Profit for the year from discontinued operations                                       X                                  X

Profit for the year                                                                                   X                                  X

 

Period attributable to:

Owners of the parent                                                                             X                                  X

Non-controlling interest                                                                          X                                  X

X                                                                                                                                                                                    X

 

An alternative to this presentation would be to analyse the profit from discontinued operations in a

separate column in the statement of profit or loss and other comprehensive income.

Question

Presentation of a non-current asset or disposal group classified as

held for sale.

 

Non-current assets and disposal groups classified as held for sale should be presented separately from

other assets in the statement of financial position. The liabilities of a disposal group should be presented

separately from other liabilities in the statement of financial position.

 

(a) Assets and liabilities held for sale should not be offset.

(b) The major classes of assets and liabilities held for sale should be separately disclosed either in

the statement of financial position or in the notes.

 

Additional disclosures

 

In the period in which a non-current asset (or disposal group) has been either classified as held for sale or

sold the following should be disclosed.

(a) A description of the non-current asset (or disposal group)

(b) A description of the facts and circumstances of the disposal

(c) Any gain or loss recognised when the item was classified as held for sale

(d) If applicable, the segment in which the non-current asset (or disposal group) is presented inaccordance with IFRS 8 Operating segments

Where an asset previously classified as held for sale is no longer held for sale, the entity should isclosea description of the facts and circumstances leading to the decision and its effect on results.

 



Discussion

  • Grace Maonde

    This is very helpful. Thank you.

    12-09-17 Reply

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