IFRS 05 Non-current assets held for sale and

discontinued operations

Disposal of asset:

An asset should be derecognized in the following circumstances:

· On disposal of the asset; or

· When no future economic benefits are expected to arise from its use or from its disposal.

Gain/loss = Carrying amount – Net disposal value

Carrying amount (CA) would be cost or revalued amount of the asset (i.e. may be actual cost
or revalued amount less any impairment loss recognized) minus accumulated depreciation of
the asst.

Net Disposal Value would be the consideration received as a result of disposal if any less any
disposal cost.

Any gain or loss arising on disposal of asset will always be taken to P/L.

Assets held for sale:

Conditions:

An asset can be classified for held for sale if all of the following conditions met:

· The asset must be available for immediate sale in its present condition;
· The management is committed to sell the asset;
· There is an active plan to locate the buyer;
· There is an active market to sell the asset at a reasonable price; and
· The sale must be expected to be completed within one year from the date of classification.

If the criteria are met after the reporting date but before authorization date than this is a non-
adjusting event and no adjustment would be made in Financial statements (i.e. classification
will not be changed). However, a disclosure must be included.

Classes of assets:

Following asset can be classified as held for sale only:

· Non-current assets (e.g. PPE);

· Disposal groups i.e. a group of assets and liabilities that are to be disposed of in a single
transaction;
· Discontinued operations.
An asset that can not be classified as held for sale under IFRS 05 individually, may be classified
as held for sale if it is a part of a disposal group.

Note: Further, any asset or disposal group that is to be abandoned cannot be classified as held
for sale under IFRS 05.

Abandoned assets:

Those assets which have either;

· Completed their economic life; or

· Closed rather than sold.

Initial Recognition:

Non-current assets that are held for sale are:

· measured at the lower of carrying amount and fair value less costs to sell;
· subject to an impairment test at the date of its classification as ‘held for sale’;
· presented on a separate category on the face of the statement of financial position; and
· are no longer depreciated.

Impairment at the date of classification:

Rules of impairment are the same as IAS 33, and disposal group will be treated as a CGU and
impairment will be allocated accordingly.

If the asset is previously held on cost model, than any loss arise as result of impairment will be
taken to P/L.

If the asset is previously held on revaluation model, than any loss arise as result of impairment
will be taken to OCI to the extent covered by revaluation surplus previously recognized and the
remaining will be taken to P/L.

Subsequent measurement:

The asset will be subjected to impairment testing subsequently and any gain/loss will be taken
to P/L.

Reversal of impairment loss will be treated the same as per the criteria of IAS 36.

Subsequent change in criteria:

Change is not on the part of entity:

After the classification of asset as held for sale, if criteria are changed subsequently that are
not on the part of the entity (i.e. due to change in circumstances asset cannot be sold within
one year) than, this will not affect the classification of the asset.
However, any disposal cost related to asset after one year will be recorded at PV and unwinding
cost will be expensed out till date of disposal.

Change is made by the entity:

If subsequently criteria are changed by the entity (e.g. entity no longer want to sell) than, the
asset must be reclassified back from held for sale to its original classification. Asset will be
reclassified/measured at the lower of:

· Its original amount at which it would have been carried if it had never been classified as held
for sale (i.e. original cost less accumulated depreciation to the date of reclassification); or
· Recoverable amount (as per IAS 36) at the date of reclassification.

Gain/loss will be taken to P/L.

Discontinued Operations:

A component of an entity that either has been disposed of or is classified as held for sale and:

· represents a separate major line of 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 subsidiary acquired exclusively with a view to resale.

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.

Any profit/loss arise from discontinued operation will be shown separately in OCI, Further, any
gain/loss from impairment testing while classification as held for sale of a discontinued
operation or a disposal group containing a discontinued operation will also be shown separately
along with the profit/loss of discontinued operations.

Comparative figures:

Balance sheet: Comparative figures will not be reclassified.

Income statement: Comparative figures will be reclassified.