The objective of IFRS 5 is to outline:
- Accounting for assets classified as “Held-For-Sale”; and
- The presentation and disclosure of “Discontinued Operations”
IFRS 5 requires non-current assets and groups of assets (disposal groups”…see below) that are ‘Held-For-Sale’ to be presented separately on the face of the Statement of Financial Position and the results of ‘Discontinued Operations’ to be presented separately in the Statement of Comprehensive Income.
IFRS 5 does not apply to the following:
- Deferred tax assets
- Assets arising from employee benefits
- Financial assets
- Investment properties accounted for in accordance with the fair value model
- Agricultural and biological assets
- Insurance contracts
ASSETS HELD FOR SALE – DEFINITION
A non-current asset shall be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
A “Disposal Group” is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
In order for a non-current asset or disposal group to be classified as ‘Held-For-Sale”, a number of detailed criteria must be met:-
- The asset must be available for immediate sale
- The sale must be highly probable
- Management must be committed to the sale
- There must be an active program to locate a buyer
- The asset must be marketed at a price that is reasonable in relation to its current fair value
- The sale should be expected to be completed within a twelve month period from the date of classification
- It is unlikely that significant change to the plan will take place or that the asset will be withdrawn from its availability for sale.
If the asset is not sold within the 12 month stipulated period, it can still be classified as held for sale as long as any delay is beyond the control of the board and they are still committed to sell.
If the criteria for ‘Held-For-Sale’ are no longer met, the entity must cease to classify the assets or disposal group as ‘held-For-Sale’. The assets or the disposal group must be measured at the lower of:
- Its carrying amount before it was classified as held for sale adjusted for the depreciation that would be charged if it were never classed as held for sale
- Its recoverable amount at the date of the decision not to sell
Any adjustment to the value should be shown in income from continuing operations for the period.
If the assets are to be abandoned or gradually wound down, then they cannot be classified as ‘Held-For-Sale’ since their carrying amounts will not be recovered principally through a sale transaction. They might, however, qualify as discontinued operations once they have been abandoned.
ASSETS HELD FOR SALE – MEASUREMENT
A non-current asset or a disposal group that is held for sale should be carried at the lower of its:
- carrying value; or
- fair value less sales costs.
An impairment loss should be recognised when the carrying value is greater than the fair value less sales costs.
When a disposal group is being written down to fair value less costs to sell, the impairment loss reduces the carrying amount of assets in the order outlined by IAS 36 Impairment of assets That is, write down goodwill first and then allocate the remaining loss to the assets on a pro-rata basis (based on their carrying amount).
Non-current assets held for sale should not be depreciated, even if they are still being used by the entity.
Where a non-current asset has previously been revalued and is now classified as being ‘Held-for-Sale’, it should be revalued to fair value immediately before it is classified as ‘Held-For-Sale’. It is then revalued again at the lower of the carrying amount and the fair value less costs to sell. The difference is the selling costs and these should be charged against the profits for the period.
ASSETS HELD FOR SALE – PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION
IFRS 5 states that assets classified as ‘Held-For-Sale” should be presented separately from other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale should be presented separately from other liabilities in the statement of financial position.
Assets and liabilities held for sale should not be offset.
The major classes of assets and liabilities classified as ‘Held-For-Sale’ must be separately disclosed either on the face of the statement of financial position or in the notes.
ASSETS HELD FOR SALE – MISCELLANEOUS POINTS
- On occasion, entities can acquire non-current assets exclusively for resale. In these cases, the non-current asset must be classified as ‘Held-For-Sale’ at the date of the acquisition only if it is anticipated that it will be sold within a one year period and it is highly probable that the held-for-sale criteria will be met within a short period of the acquisition date (normally no more than three months).
- If the criteria for classification of an asset as ‘Held-For-Sale’ occur after the year end, the non-current asset should not be shown as ‘Held-For-Sale’. However, certain relevant information should be disclosed about the asset in question. This is a non-adjusting event after the reporting date.
- Exchanges of non-current assets between entities can be treated as ‘Held-For-Sale’ when such an exchange has a commercial substance, in accordance with IAS 16 Property Plant and Equipment.
- A non-current asset that has been temporarily taken out of use or service cannot be classified as being abandoned.
- Assets classified as held for sale at the statement of financial position date are not reported retrospectively. Therefore, comparative statements of financial position are not restated.
DISCONTINUED OPERATIONS – DEFINITION
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.
A discontinued operation is a component of an entity that has either been disposed of or is classified as ‘HeldFor-Sale’ and:
- Represents a separate major line of business or geographical area of operations
- Is part of a single coordinated plan to dispose of separate major line of business or geographical area of operations; or
- Is a subsidiary acquired exclusively with a view to resale.
A component of an entity can be a business, geographical or reportable segment, a cash-generating unit or a subsidiary.
If the operation has not already been sold, then it will only be a discontinued operation if it is held for sale.
DISCONTINUED OPERATIONS – PRESENTATION
The entity should disclose a single amount on the face of the statement of comprehensive income comprising the total of:-
- The post tax profit or loss of discontinued operations and
- The post tax gain or loss on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group constituting the disposal group
The above-mentioned single amount must be analysed, either in the notes or on the face of the Statement of Comprehensive Income, into:
- The revenue, expenses and pre-tax profit or loss of discontinued operations
- The related income tax expense
- The gain or loss recognised on the re-measurement to fair value less costs to sell or on the disposal of the assets of the discontinued operation
- The related income tax expense
The entity should disclose the net cash flows attributable to the operating, investing and financing activities of discontinued operations. These disclosures may be presented either on the face of the cash flow statement or in the notes.
If the decision to sell an operation is taken after the year end, but before the financial statements are authorised, this is treated as a non-adjusting event after the reporting date and is disclosed in the notes. The operation does not qualify as a discontinued operation at the reporting date and separate presentation is not appropriate.