IFRS 5 Full Text Overview
- A company might hold an asset at the year end that it has the intension of selling.
- IFRS 5 Non-current assets held for sale and Discontinued operations contains rules which impact the measurement and presentation of such assets i.e. 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 identifies three classes of item that might be described as held for sale:
- Non- current assets (Individual assets)
- Disposal groups (group of Non-current assets)
- Discontinued operations
Disposal group – A group of assets to be disposed of in a single transaction, and any liabilities directly associated wit those assets will be transferred in the transaction.
- Some disposal groups might fall into the definition of a discontinued operation.
- A disposal group may be a group of cash-generating unit, single cash-generating unit, or part of cash-generating unit.
Held for sale
Non-current Assets and Disposal groups
IFRS 5 Criteria
The following conditions must apply at the reporting date for an asset (or disposal group) to be classified as held for sale:
- It must be available for immediate sale
- The sale must be highly probable i.e.;
- Management must be committed
- An active program to locate a buyer
- The sale must be actively marketed at a price reasonable in relation to its current fair value
- The sale must be expected to be completed within one (1) year from the date of classification as held for sale.
- If the criteria are met after the reporting date but before the authorization of the financial statements the asset must not be classified as held for sale as at the reporting date (i.e. non-adjusting event);
- However, entity is required to make certain disclosures
Sale expected in over 1-year period
- Circumstances might extend the period to complete the sale beyond a year. This does not preclude an asset from being classified as held for sale as long as;
- Delay is caused by events or circumstances beyond the entity’s control; and
- There is sufficient evidence that the entity remains committed to its plan to sell the asset.
- Costs to sell that are to be paid after one year should be discounted with the unwinding of the discount recognized subsequently as finance cost in Profit/Loss.
Non-current assets (or disposal groups) to be abandoned
- Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be;
- Used to the end of their economic life; or
- Closed rather then sold.
- Such assets must not be classified as held for sale.
Assets classified as non-current as per IAS 1 cannot be reclassified as current assets, until they meet the criteria to be classified as held for sale.
Measurement: Non-current Assets and Disposal groups Held for Sale
- Assets held for sale and disposal groups should be measured at the lower of;
- Carrying amount
- Fair value less cost 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 recognized as a loss in the profit/loss unless the asset to which it relates is carried at a previously recognized Revaluation Surplus. In this case the loss is taken to other comprehensive income to the extent that it is covered by the previously recognized surplus on that Any amount not covered is recognized in profit/loss.
- A non-current asset must not be depreciated (or amortized) while it is classified as ‘held for sale’.
- If the carrying amount is less than the fair value less cost to sell there is no impairment. In this case there is NO adjustment to the carrying amount of the asset. A gain is NOT recognized on reclassification as held for sale (A gain on disposal will be included in P/L when the disposal actually occurs).
- The measurement requirements of IFRS 5 apply to all recognized non-current assets and disposal groups except for;
- Deferred tax assets
- Assets arising from employee benefits
- Financial assets (IFRS 9)
- Investment Property (IAS 40)
Provided, a non-current asset that is scoped out of IFRS 5 for measurement purposes may fall within the classification and presentation rules: Such a non-current asset might be part of a disposal group. In this case the measurement rules of IFRS 5 apply to the disposal group as a whole but not to the scoped-out assets.
Subsequent remeasurement of non-current asset or disposal group might lead to:
- A further impairment loss, which must be recognized; or
- A gain – which is recognized but only to the extent that is covered by a previously recognized impairment loss.
Changes to 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, amortization or revaluation that would have been recognized 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 recognized in income from continuing operations.
- A discounted operation is a disposal group that satisfies extra criteria.
- Discontinued operation – A component of an entity that either has been disposed of or it is classified as held for sale and;
- Represents a separate major line o business or geographical area of operations.
- Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
- Is a subsidiary acquired exclusively with a view to resale.
- Component – A component of an entity comprises operations and cash flows that can be clearly distinguished, from the rest of the entity.
- If an entity disposes of an individual non-current asset, or plans to dispose of an individual asset in the immediate future, this is not classified as a discontinued operation (unless) the asset meets the definition of a ‘Component’ of an entity.
- An operation cannot be classified as discontinued in Statement of financial position if criteria for classifying it as discontinued are met after the end of the reporting period (i.e. non-adjusting).
IFRS 5 Non-current assets held for sale and Discontinued operations Disclosure Requirements
Non-current Assets and Disposal groups
Statement of financial position
- Non-current assets classified as held for sale are presented separately from other assets.
- The assets and liabilities of a disposal group classified as held for sale are presented separately from other assets and liabilities. These assets and liabilities must not be off-set and present as a single amount.
- Comparative are not restated to reflect the classification in SOFP for the latest period.
- Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation is included in profit/loss from ‘Continuing operation’.
- Changes to plan for sale:
- Disclose the fact
- A description of facts and circumstances and its effect.
Discontinued Operations IFRS
Statement of Comprehensive Income
- A single-amount on the face of P/L comprising the total of:
- The post-tax profit/loss of discontinued operation
- Gain/loss on its assets
Statement of Cash Flow
- The ‘net’ cash flows attributable to the operating, investing and financing activities of discontinued operations.
Notes to the Financial Statements
- The analysis of that single-amount:
- Revenue, expenses, pre-tax profit/loss of discontinued operation
- Tax expense
- Asset gain/loss
- Comparatives must be restated for these disclosures
Statement of Financial Position
- Asset/liabilities must be disclosed separately from other assets/liabilities.
IFRS 5 PDF
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