IFRS 5 Non-current Assets Held For Sale And Discontinued Operations |

Non-current assets held for sale

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The core principle is that a non-current assets is deemed to be held for sale if its carrying value is expected to be recovered through selling it rather than using it. Making this judgment has two important accounting implications: Non-current assets held for sale

  1. It is carried within current assets in the statement of financial position; and Non-current assets held for sale
  2. It is not depreciated from the date of reclassification. Non-current assets held for sale

The conditions

In order to make this judgment, the asset must meet two strict conditions:

  1. It is available for immediate sale in its present condition at the date Non-current assets held for saleclassification to “held for sale” is made (this means the asset cannot be
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Measurement of Building held for sale

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This is a case for the measurement of building held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

The case

Pinch plc owns a building which it has used for many years as a factory. On 1 January 2012 the building had a carrying value of €15m with an estimated useful economic life of 15 years. Pinch uses the cost model under IAS 16 to account for buildings.

On 1 April 2012 Pinch plc commenced operations in a new building, and the old one was placed on the market as it was no longer being used. The estimated proceeds of sale were €13 million, less selling costs of €0.2 million. It … Read more

Control Joint control Significant influence

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This is a discussion on IFRS 10 – IFRS 12 Control Joint control Significant influence and the accounting applied. It is added with some other logical IFRS topics: the fair value option and the other investments (no control, no joint control and no significant influence).

ControlControl of an investee Control of an investee

Consolidated subsidiaries – Consolidated structured entities Control Joint control Significant influence

For an investor to control an investee, the investor must possess all of the following elements:

  • Power over the investee, which is described as having existing rights that give the current ability to direct the activities of the investee that significantly affect the investee’s returns (such activities are referred to as the ‘relevant activities’)
  • Exposure, or rights, to variable returns
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Plan to sell a factory Highly probable?

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Plan to sell a factory Highly probable explores the meaning of highly probable in accounting for IFRS 5 through a clear case.

The case

An entity is committed to a plan to sell a factory. The production cycle is six months and pollutants are involved. The company must meet its existing orders. Dismantling the equipment and cleaning up the pollution will put the facility out of action for six months. Does the factory meet the criterion of ‘availability for immediate sale’?

No. The fact that several months must be spent fulfilling existing orders and then dismantling and cleaning the factory means that it is not available for immediate sale in its present condition. Therefore, the factory … Read more

Non-current assets held-for-sale

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Non-current assets held-for-sale explains the accounting for a disposal group rather than single assets. What about the liabilities in the sale activity?

To understand it properly, take a brief look back at IAS 1, Presentation of Financial Statements. Here is the look back….. Non-current assets held-for-sale

In most cases, IAS 1 requires an entity to present current and non-current assets and liabilities separately in the statement of financial position. While current assets (and liabilities) are clearly defined by the standard, non- current assets (and liabilities) are defined by default: “An entity shall classify all other assets as non-current”.

The rules on classification and presentation given in IFRS 5 apply to all non-current assets, as well as all … Read more

Presentation of discontinued operations

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The presentation of discontinued operations is part of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Presentation of discontinued operations

The profit or loss for the year on discontinued operations is presented as a separate line in the statement of profit or loss and other comprehensive income after the figure ‘profit for the year’. Presentation of discontinued operations

The line items from ‘Revenue’ to ‘profit for the year’ should therefore include continuing operations only. The figure for discontinued operations should include the post tax gain or loss on disposal of the assets of the operation (if sold) or the gain or loss on re-measurement following transfer to ‘held for sale’ (if relevant). Presentation of Read more

Discontinued operations

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The definition: Discontinued operations is a component of an entity that either has been disposed off, or is classified as held for sale, and:

  1. represents a separate major line of business or geographical area of operations, Discontinued operations
  2. is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
  3. is a subsidiary acquired exclusively with a view to resale. Discontinued operations

and the second definition: A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit … Read more

Assets held for sale measurement

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Assets held for sale measurement is part of IFRS 5 Non-current assets held for sale and discontinued operations. Plans to dispose of assets may be an indicator that the asset(s) may be impaired and may accordingly trigger impairment testing procedures. Any impairments (or reversals of previous impairments) are recognised before the entity classifies the asset(s) as held for sale (see step 1 below).

Once the decision has been made to classify an asset as ‘held for sale’ in accordance with the 5 conditions mentioned in Non-current assets held for sale, the question of measurement arises. At what value will we carry the asset within current assets? IFRS 5 requires the following procedure:

  1. Before transfer to
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Acquisitions exclusively with a view to disposal

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Entities often acquire non-current assets exclusively with a view to disposal/sale (or acquisitions 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.  Acquisitions exclusively with a view to disposal

If an entity is winding … Read more