IFRS 5 Non-current Assets held for sale or for Discontinued Operations outlines how to account for noncurrent assets held for sale(or to distributed to owners), in general terms, assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less cost to sell, and are presented separately in the statement of financial position. Specific disclosures are also required for discontinued operations and disposals of non-current assets. A non-current asset or disposal group should be classified as “held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
Objective of IFRS 5
IFRS 5 sets out requirements that specify the accounting treatment for assets held for sale, and the presentation and disclosure of discontinued operations.
IFRS 5 requires assets that meet the criteria to be classified as held for sale are:
- measured at the lower of carrying amount and fair value less costs to sell;
- not depreciated; and
- presented separately on the face of the statement of financial position.
Additionally, the results of discontinued operations must be presented separately in the statement of profit or loss.
IFRS 5 identifies three classes of item that might be described as held for sale. These classes are of an increasing level of sophistication: non-current assets; disposal groups; and discontinued operation
DEFINITIONS
Non-current Assets Held for Sale: An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
A component on an entity: is operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
A disposal group: is a group of assets to be disposed of, by sale or otherwise, together as group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash generating unit to which goodwill has been allocated in accordance with IAS 36.
Criteria
A non-current asset (or disposal group) must be classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use. In general, the following conditions must be met for an asset (or disposal group’) to be classified as held for sale:
- management is committed to a plan to sell
- the asset is available for immediate sale
- an active programme to locate a buyer is initiated
- The sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)
- the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value
- actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn
If the criteria are met for a non-current asset (or disposal group) after the reporting date but before the authorisation of the financial statements for issue, that asset must not be classified as held for sale as at the reporting date. However the entity is required to make certain disclosures in respect of the non-current asset (or disposal group)
Measurement of non-current assets and disposal groups held for sale
Assets held for sale and disposal groups should be measured at the lower of:
- their carrying amount (i.e. current values in the statement of financial position, as established in accordance with accounting standards and principles), and
- fair value less costs to sell.
If the value of the ‘held for sale’ asset is adjusted from carrying amount to fair value less costs to sell, any impairment should be recognised as a loss in the statement of profit or loss for the period unless the asset to which it relates is carried at a previously recognised revaluation surplus. In this case the loss is taken to other comprehensive income to the extent that it is covered by the previously recognised surplus on that asset. Any amount not covered is recognised in the statement of profit or loss.
NB; A non-current asset must not be depreciated (or amortised) while it is classified as ‘held for sale’ or while it is part of a disposal group that is held for sale.
Subsequent remeasurement
Subsequent remeasurement of the non-current asset (or disposal group) might lead to:
- a further impairment loss – which must be recognised; or
- a gain – which is recognised but only to the extent that it is covered by a previously recognised impairment loss.
Changes to a plan of sale
If an asset (or disposal group) has been classified as held for sale, but the criteria are no longer met, it must be removed from this classification. Such an asset is measured at the lower of:
- the amount at which it would have been carried if it had never been classified as held for sale (i.e.: its carrying amount before it was classified as held for sale as adjusted for any depreciation, amortisation or revaluations that would have been recognised if it had not been so classified); and
- its recoverable amount at the date of the subsequent decision not to sell.*
Any necessary adjustment to the carrying amount is recognised in income from continuing operations, in the same statement of profit or loss caption used to present a gain or loss on assets held for sale.
Conclusion:
Non-current assets (and groups of non-current assets) that meet certain strict criteria are classified as being held for sale. Non-current assets that are held for sale are:
- subject to an impairment test;
- presented on a separate category on the face of the statement of financial position; and
- are no longer depreciated.
Any loss recognised on a non-current asset carried at cost as a result of the impairment test at the date of its classification as ‘held for sale’ is recognised in the statement of profit or loss. Any loss recognised on a non-current asset carried at a revalued amount as a result of the impairment test at the date of its classification as ‘held for sale’ is recognised in other comprehensive income (to the extent that it is covered by the previously recognised surplus on the same asset) with the balance recognised in the statement of profit or loss.