IFRS 5 Non-current Assets Held for Sale & Discontinued Op.
IFRS 5 requires assets held for sale to be measured at the lower of their carrying amount or fair value less costs to sell. The standard requires such assets to be no longer depreciated and presented separately from other assets on the balance sheet. Any income from discontinued operations is also presented separately.
IFRS 5 applies to all non-current assets and disposal groups. However, it specifically scopes out deferred tax assets (IAS 12), pension assets (IAS 19), financial assets (IFRS 9), investment property (IAS 40), biological assets (IAS 41) and insurance assets (IFRS 17).
A disposal group is a group of assets (possibly with associated liabilities) which are disposed off together. A disposal group may include current assets and the assets excluded above. IFRS 5 also applies to assets held for distribution to owners.
Requirements for held for sale classification
An asset or a disposal group must be classified as held for sale if their carrying amount would principally be recovered through a sale transaction rather than through continuing use. The asset must be immediately available and the sale must be highly probable. For a sale to be probable, appropriate level of management must be on board, there must be a plan to find a buyer, there must be an active marketing plan, the offered price must be reasonable, the sale must be expected to be recognized within one year, and any significant changes in the plan must be unlikely.
If an entity designates a subsidiary as held for sale, all the assets must be classified as held for sale regardless of any future expected non-controlling interest that is continued to be held.
Held for sale classification is a non-adjusting event but a disclosure is needed when the classification criteria is met after the date of financial statements but before the date of issue.
Any non-current asset or disposal group which is to be abandoned shall not be classified as held for sale. However, if criteria is met any income shall be presented as part of income from discontinued operations.
Measurement of assets held for sale
An asset held for sale or a disposal group is measured at the lower of the carrying amount and fair value less costs to sell. The costs to sell are discounted to their present value if sale is expected to occur after a year. The carrying amount is updated just before the reclassification in accordance with relevant IFRS standards, such as IAS 16, etc. Subsequent to reclassification, the carrying amounts of assets and liabilities included in a disposal group are determined in accordance with relevant IFRSs.
Recognition and reversal of impairment losses
Impairment loss is recognized if the carrying amount exceeds the fair value less costs to sell.
If there is a rebound in the fair value less costs to sell, a gain is recognized maximum up to any impairment losses previously recognized both under IFRS 5 and previously (i.e. before held for sale classification). Similar treatment is allowed in case of a disposal group.
Changes to a plan of sale
If an asset or a group no longer meets the classification criteria for held for sale assets, it shall cease to be classified as held for sale. It shall be measured at the lower of:
- The carrying amount before classification as held for sale adjusted for depreciation, amortization or revaluation that would have been recognized had no held for sale classification been made, and
- The recoverable amount at the time of reclassification.
No reclassification is needed if the assets held for sale are earmarked as held for distribution to owners.
Any charge to profit or loss shall be made in the period in which the criteria is no longer met. Adjustments to prior period financial statements may be needed if disposal relates to a subsidiary, joint operation, etc.
If an asset is removed from a disposal group, the remaining asset shall be classified as held for sale only if all assets meet the held for sale criteria.
Disclosure and presentation requirements
An entity must present a single line item in its statement of comprehensive income representing the total of post-tax profit or loss from a discontinued operations and gains or loss arising from remeasurement of the discontinued operations as held for sale. A breakup of the single line item must be provided in the statement of comprehensive income or in the notes. An entity must also disclose net cash flows from operating, investing and financing activities of the discontinued operations.
An entity must present non-current assets classified as held for sale or a disposal group separately from other assets. In case of a disposal group, any associated liabilities are not allowed to be offset against assets. A breakup of assets into major classes is to be given in notes except where the disposal group is a newly acquired subsidiary held for sale.