There are two distinct parts to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Both are related and can occur together, but each can also occur independently of the other.
“Non-current assets held for sale” deals with the situation where an entity decides that a non-current asset (which by definition is held for continuing use in the business) is no longer to be held for continuing use. Rather it is to be sold. As this is an intention rather than an observable fact, strict controls are laid down by IFRS 5 to regulate when an asset is considered to be “held for sale” and also its accounting treatment.
“Discontinued operations” arise when an entity decides to discontinue a part of its business. This part of IFRS 5 is concerned with separate disclosure of the results of operations deemed to be discontinued.
It is possible to have a discontinued operation which has no assets held for sale. Similarly it is possible to have assets held for sale without discontinuing an operation. They can also occur together.
Assets which are determined to be sold should be classified as “held for sale” and reported separately from property, plant and equipment on the entities balance sheet. The reclassification needs to occur in the period in which all of the following criteria are met:
- Management, having the authority to approve the action, commits to a plan to sell the asset.
- The assets are available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
- An active marketing program is identified to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
- The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
- The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which a long-lived asset is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset.
Consideration and analysis should additionally be applied to the overall carrying value of the asset held for sale at the time of reclassification. The overall carrying value should be the lower of cost or fair market value less estimated selling costs. If fair value less estimated selling costs is determined to be less than the current book value, an impairment should be reported through earnings in the period of reclassification. The adjusted carrying amount will become the asset’s new basis.
All assets classified as held for sale should not be depreciated. However, any interest and other expenses attributable to the disposal of the asset classified as held for sale shall continue to be accrued and expensed.
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.
Non-current Assets Held for Sale and Discontinued Operations Non-current Assets Held for Sale and Discontinued Operations Non-current Assets Held for Sale and Discontinued Operations