IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Summary of IFRS 5 requires:
- a non-current asset or disposal group to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction instead of through continuing use;
- assets held for sale to be measured at the lower of the carrying amount and fair value less costs to sell;
- depreciation of an asset to cease when it is held for sale;
- separate presentation in the statement of financial position of an asset classified as held for sale and of the assets and liabilities included within a disposal group classified as held for sale; and
- separate presentation in the statement of comprehensive income of the results of discontinued operations.
Definition if non-current assets held for sale (HFS)
A non-current asset is classified as HFS if:
- Management is committed to a plan to sell
- The asset is available for immediate sale in its present condition, and its sale must be highly probable.
To be highly probable:
- Management should be committed to a disposal plan
- An active program to locate a buyer is initiated
- The asset is being marketed for sale at a price reasonable in relation to its fair value
- The sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)
- It is unlikely significant changes will be made to the disposal plan; and
- Actions required to complete the disposal plan indicate that it is unlikely that the plan will be significantly changed or withdrawn.
Measurement of non-current assets HFS
Immediately before transfer to the HFS category, a non-current asset must be measured in accordance with applicable IFRS Standards (e.g. a property held under the IAS 16 revaluation model is revaluated to fair value).
On transfer to HFS, a non-current asset is measured at the lower of carrying amount and fair value less costs to sell. Any resulting impairment loss recognized in profit or loss.
Depreciation ceases on classification as HFS.
At subsequent reporting dates an asset HFS is remeasured to the lower of carrying amount and fair value less costs to sell.
Presentation of non-current assets HFS
Non-current asset HFS are presented separately from other assets.
Disposal groups HFS
A disposal group is group of assets, possibly with some associated liabilities, which an entity intends to dispose of in a single transaction.
- A disposal group is classified as HFS if it meets the same criteria as those for an asset HFS
- A disposal group acquired exclusively with a view to subsequent disposal is classified as HFS if the sale is expected to take place within 12-months of acquisition and the other conditions are met within 3 months of the acquisition
- The assets and liabilities of a disposal group are remeasured in accordance with IFRS Standards before classification as HFS; on classification they are measured at the lower of carrying amount and fair value less costs to sell
- Impairment losses are recognized in accordance with IAS 36 (against goodwill in the first place and then against other non-current assets on a pro rata basis)
- Depreciation is not charged on the assets of a disposal group HFS
- Assets and liabilities of a disposal group HFS are presented separately from other assets and liabilities in the statement of financial position. They are not offset.
Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separately on the face of the statement of financial position.
A discontinued operation is a component of an entity that either has been disposed for or is classified as HFS and:
- Represents a separate major line of business or geographical area of operations
- Is part of a single co- ordinated plan to dispose of a separate major line of business or geographical area of operations, or
- It is a subsidiary acquired exclusively with a view to resale
Discontinued operations: presentation and disclosure
The total of the post-tax profit or loss of the discontinued operation, and the post-tax gain or loss recognised on the measurement to fair value less cost to sell (or on the disposal), should be presented as a single figure on the face of the income statement.
IFRS 5 requires detailed disclosure of revenue, expenses, pre-tax profit or loss, and the related income tax expense either in the notes or on the face of the income statement. If this information is presented on the face of the income statement, then the information should be separately disclosed from that of continuing operations.
As regards the presentation in the cash flow statement, the net cash flows attributable to the operating, investing and financing activities of the discontinued operation should be separately shown on the face of the cash flow statement or disclosed in the notes. Retrospective classification as a discontinued operation where the criteria are met after the balance sheet date is prohibited by IFRS 5.
Change of plans
If criteria for an asset to be classified as held-for-sale are no longer met, then the asset or disposal group ceases to be held-for-sale. In this case, it should be valued at the lower of the carrying amount before the asset or disposal group was classified as held-for-sale (as adjusted for any subsequent depreciation, amortisation or re-valuation), and 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.
Other key points
Entities often acquire non-current assets exclusively with a view to disposal. Such a non-current asset will be classified as held-for-sale at the date of the acquisition only if it is anticipated that it will be sold within the one-year period, and it is highly probable that the held-for-sale criteria will be met within a short period (normally three months) of the acquisition date.
If the criteria for classifying a non-current asset as held-for-sale occur after the balance sheet date, then the non-current asset should not be shown as held-for-sale but disclosure of the fact should be made.
If an entity is winding up operations or ‘abandoning’ assets, then these assets do not meet the definition of held-for-sale. However, a disposal group that is to be abandoned may meet the definition of a discontinued activity.
Abandonment means that the non-current asset has been used to the end of its economic life or the disposal group will be closed rather than sold. If the asset is temporarily not being used, it is not deemed to be abandoned.
- Phnom Penh HR
- IFRS 5
- ifrs . org/issued-standards/list-of-standards/ifrs-5-non-current-assets-held-for-sale-and-discontinued-operations/
- accaglobal . com/sg/en/member/discover/cpd-articles/corporate-reporting/ifrs5-nca.html