CHAPTER 26

NON-CURRENT ASSETS HELD FOR SALES &

DISCOUNTINUED OPERATIONS
Sources:
(1) Financial Reporting ACCA Workbook, BPP Learning Media, 2021, Chapter 17
(2) FRS for Malaysia 3rd Edition by Jane Lazar 2010. Chapter 6
(3) http://www.iasplus.com/
(4) IFRS 5 NCA HFS & DOs
(5) http://www.ifrsbox.com/tag/ifrs-5/

IFRS 5

NCA HFS DO

- Immediate sale Subsidiary acquired with view to sale

Measured at lower of

CV FV – Cost to sell / dispose

No depreciation

Overview

IFRS 5 NCA HFS and DOs outlines how to account for NCA HFS.

In general terms, assets (or disposal groups) HFS are not depreciated, are measured at the
lower of CA and FV less costs to sell, and are presented separately in the SOFP.

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Objectives

IFRS 5 focuses on 2 main areas:

(a) It specifies the accounting treatment for assets (or disposal groups) HFS, and

(b) It sets the presentation and disclosure requirements for DOs.

(A) NCA HFS

Background

IFRS 5 requires:

- Assets & group of assets that are “HFS” to be presented separately in the SOFP &

- The results of DOs to be presented separately in the SOPL.

this is required so that the users of FS will be better able to make projections about the
financial position, profits & cash flows of the entity.

Classification

HFS can apply either:

(a) Specific NCA

(b) A ‘disposal group’ which is a group of cash-generating assets (CGU) that will be
disposed in a single transaction.

Disposal group

Disposal group represents a group of assets and liabilities to be disposed of together as a

group in a single transaction.

Exp:
When a company runs a few divisions and decides to sell one division, then all assets
(including PPE, inventories, deferred tax, etc.) and all liabilities of that division would
represent a disposal group.

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CGU

Smallest identifiable group of assets for which independent cash flows can be identified &
measured.

When to classify an asset as HFS

Timing of classification

A NCA of disposal group should be classified as HFS if its CA will be recovered principally
through a sale transaction rather than through continuing use.

Recover

Sales Continuing use

When will an asset be recovered through a sale?

The asset or disposal group must be:

- Available for immediate sale in its present conditions and

- The sale must be highly probable

For the sale to be highly probable, the following must apply:

(a) management is committed to a plan to sell

(b) the asset is available for immediate sale

(c) an active programme to locate a buyer is initiated

(d) the sale is highly probable, within 12 months of classification as HFS (subject to
limited exceptions)

(e) the asset is being actively marketed for sale at a sales price reasonable in relation to its
FV

(f) actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn

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Question 1
Scenario
(1) An entity intends to dispose of its
office building and the time taken to
vacate is 2 months.
(2) An entity has found a buyer with a
firm commitment to buy its office
building.
However, the entity intends to use the
office building until the completion of
the construction of its new building.
(3) An entity is committed to a plan to
sell its building and lease back the
building on finance lease.
(4) An entity has some equipment that has The equipment cannot be classified as HFS.
recently been returned by the lessee
and the entity has not decided whether
to sell or lease them.
(5) An entity commits to dispose of its
factory including unfulfilled orders
from customers.
(6) An entity commits to dispose of its
factory but the entity wants to fulfill
all the present customers’ orders. The
factory will only be transferred after
the entity ceases operating the factory.
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Answer
The building can be classified as HFS on
the commitment date as the time taken to
vacate is normal.
The office building cannot be classified as
HFS until the completion of the
constructions of it’s new building.
This is because the timing for vacating the
old building is imposed by the seller and the
building is not available for immediate
transfer.
The old office building can be classified as
HFS only after the new building is ready for
occupation.
The building cannot be classified as HFS as
it is not a sale but a loan arrangement.
The factory can classified as a disposal
group HFS as it is available for immediate
sale.
As the timing of the transfer is imposed by
the seller and the factory is not available for
immediate sale, the factory cannot be
classified as HFS until operations cease.
Extension of the one-year period

An extension is allowed if:

- The circumstances or events causing the delay are beyond the control of the entity &

- The entity is still committed to sell.

Otherwise the entity must cease to classify the asset as HFS.

The following are the situations that considered to be accepted:

(1) At the date of commitment to sell the asset, the entity expects others, not the buyer, to
impose condition on the transfer of the asset and actions to respond to these conditions
can only be undertaken after a firm purchase commitment involves a legally
enforceable agreement with an unrelated party whereby the terms of the agreement
includes all significant terms such as price, timing & penalty for non-performance.

Question 2

An entity commits to sell its building and the buyer needs to obtain a bank loan to buy the
building. The legal procedures including the registration of the transfer with the land office
will take more than one year. The regulatory procedures cannot be initiated until a buyer has
made a firm commitment.

Answer:

The building can be classified as HFS as an extension of the one-year period is acceptable.

(2) At times, the buyer or others unexpectedly impose conditions for the sale to take
place but actions to respond to the conditions are undertaken & the outcome is
expected to be favourable.

Question 3

An entity has made a commitment to sell a building in its present condition and classified as
HFS. The buyer makes a firm purchase commitment but on inspection of the building, the
buyer requests the seller to make good some environmental damage to the building which
was not previously known. Rectification work to be done satisfactorily will extend the sale
period beyond one year.

Answer:

The extension of the one-year period is allowable and the building can be classified as HFS.

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 (1) During the initial one-year period, circumstances that were previously considered
unlikely arise. As a result, the asset is not sold by the end of that period.

However, during the initial one-year period, the entity responds appropriately to the
change in circumstances & the entity continues to actively market the asset at a
price that is reasonable to the changed circumstances.

Also the asset is available for disposal in its present condition.

Question 4

Scenario Answer

(1) An entity made a firm commitment to sell its office The building can continue to
block at a reasonable price. During the one-year be classified as HFS.
period there was a glut of office space and prices
dropped. The entity reduced the asking price to a
reasonable amount.

(2) Continue from (1) above, in the second year, prices of In the 2nd year, the building
office block dropped further but the seller believed could no longer be classified as
that the market condition would be improve and did HFS and should be treated
not reduce the asking price which was more than its under IAS 16.
current FV.

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Question 5

On 1 December 2018, a company became committed to a plan to sell a manufacturing facility

& has already found a buyer. The company does not intend to discontinue the operations
currently carried out in the facility.

At 31 December 2018 there is a backlog of uncompleted customer orders. The company will
not be able to transfer the facility to the buyer until after it ceases to operate the facility & has
eliminated the backlog of uncompleted customer orders. This is not expected to occurred
until 2nd quarter of 2019.

Required:

Can the manufacturing facility be classified as “HFS” at 31 December 2018?

Answer

The facility will not be transferred until the backlog of orders is completed; this demonstrates
that the facility is not available for immediate sale in its present condition.

It must be treated in the same way as others items of PPE and continue to be depreciated.

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NCA or DISPOSAL GROUP ACQUIRED WITH VIEW TO SALE

Can be classified as “HFS” only if the sale is expected to be completed within one year from
the date of acquisition.

Question 6

Scenario Answer

(1) A bank acquired a property through a The property can be classified as

foreclosure where the borrower was unable to HFS.
settle his loan. The bank intends to sell the
property to the highest bidder immediately.

(2) A bank acquired a property through a The property cannot be classified as

foreclosure where the borrower was unable to HFS till the renovation is completed.
settle his loan. The bank intends to repair and
renovate the property before it would be
transfer the property.

NCA THAT ARE ABANDONED

This asset is not allow to classified as “HFS” as the CA of the abandoned asset will be
recovered principally through continuing use & not sale.

Well, it means that you will NOT apply “held-for-sale accounting”, i.e. you will NOT keep
an asset at lower of fair value less costs to sell and its carrying amount.

Question 7

An entity ceased using a manufacturing plant as the demand for its products declined. The
plant is kept in good working condition and will be brought back to use if the demand for the
products resume. The entity may sell the plant if it gets a good offer.

Answer

The plant cannot be classified as HFS.

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MEASUREMENT

Measured at the lower of its:

(a) Carrying amount (CA)

(b) Net realizable value (NRV) = FV – Cost to sell the asset/disposal group

How to account for assets HFS

IFRS 5 lists a few measurement exceptions:

(a) Deferred tax assets (IAS 12 Income Taxes).

(b) Assets arising from employee benefits (IAS 19 Employee Benefits).
(c) Financial assets within the scope of IFRS 9 Financial Instruments.
(d) NCA that are accounted for in accordance with the fair value model in IAS 40
Investment Property.
(e) NCA that are measured at fair value less costs to sell in accordance with IAS 41
Agriculture.
(f) Contractual rights under insurance contracts as defined in IFRS 4 Insurance Contracts.

When you classify any of the above types of assets as assets HFS, you continue measuring
them under the same accounting policies as before classification (e.g. financial instrument
HFS will still be measured under IFRS 9, not IFRS 5).

All other assets not excluded in the above list must be measured at lower of their carrying
amount and fair value less costs to sell. That’s the main measurement principle of IFRS 5.

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IMPAIRMENT

An impairment loss should be recognized where NRV < CA.

Recognised in SOPL.

Impairment must be considered both at the time of classification as HFS and subsequently:

(a) At the time of classification as HFS (b) After classification as HFS

Immediately prior to classifying an asset or
disposal group as HFS, impairment is
measured and recognised in accordance with
the applicable IFRSs (generally IAS 16
PPE, IAS 36 Impairment of Assets, IAS 38
Intangible Assets, and IFRS 9 Financial
Instruments).
Any impairment loss is recognised in profit
or loss unless the asset had been measured at
revalued amount under IAS 16 or IAS 38, in
which case the impairment is treated as a
revaluation decrease.
Any impairment loss that arises by using
the measurement principles in IFRS 5
(adjusted CAs of the asset / disposal group
less FV less costs to sell) must be
recognised in profit or loss, even for assets
previously carried at revalued amounts.
This is supported by IFRS 5, which indicate
the inconsistency with IAS 36.

Assets carried at FV prior to initial classification

For such assets, the requirement to deduct costs to sell from FV may result in an immediate
charge to profit or loss.

Subsequent increases in FV

A gain for any subsequent increase in FV less costs to sell of an asset can be recognised in
the profit or loss to the extent that it is not in excess of the cumulative impairment loss that
has been recognised in accordance with IFRS 5 or previously in accordance with IAS 36.

No depreciation.

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SUBSEQUENT MEASUREMENT & REVERSALS OF IMPAIRMENT LOSS

Remeasured at reporting period until disposal at the lower of:

(a) CA

(b) FV – Cost to sale

Question 8

PPE NCA HFS NCA HFS

CV = 250k NSP = 230k (a) NSP = 240k
FV = 245k HFS FV = 230k (BS) HFS FV = 240k (BS)

(b) NSP = 255k

HFS FV = 245k (BS)

1/12/18 1/3/19

On 1 December 2018, a plant of Edora had a CV of RM250,000, but its CV was remeasured
to RM245,000. On classification as HFS, the FV less cost to sell was RM230,000.

On 1 March 2019, the FV less cost to sell was:

(a) RM240,000

(b) RM255,000

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Answer

First the plant has to be written down to RM245,000. On classification as HFS it will be
measured at RM230,000.

(a) On 1 March 2019 there is a reversal of impairment and the plant will be measured at
RM240,000. The gain of _____________ is taken to SOPL.

(b) On 1 March 2019 there is a reversal of impairment and the plant will be measured at
_______________which is its CV immediately before being classified as HFS.

Question 9

PPE NCA HFS NCA HFS

CV = 2m FV = 1.8m (BS) FV = 1.95m (BS)
Rev surplus = 250k (BS)

1/1/18 15/9/18 1/3/19

Anna had a piece of land of CV of RM2 million. It was previously revalued and the surplus
on revaluation was RM250,000. On 15 September 2018, the land was classified as HFS and
its FV was RM1.8 million.

On 1 March 2019, the FV of the land increased to RM1.95 million and the asset continued to
be classified as HFS. The financial year-end is 31 December.

Answer

On 15 September 2018, the land will be written down to RM1.8 million. The IL is written off
against the _______. The balance in the _______ will be RM50,000. (RM250,000 –
RM200,000)

On 1 March 2019, the FV of the asset increased by RM150,000. The gain is credited to
________________. The CV of the land will be RM1.95 million.

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DEPRECIATION

Not depreciated or amortised, even if they are still being used by the entity.

CHANGES TO A PLAN TO SALE

NCA will be remeasured at the lower of:

(a) The CA before it was classified as “HFS”, adjusted for any depreciation that would
have been charged had the asset not been HFS.

(b) Its RA at the date of the decision not to sell.

DISPOSAL

GOD / LOD = Sale proceeds – CA

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PRESENTATION

Assets classified as HFS, and the assets and liabilities included within a disposal group
classified as HFS, must be presented separately on the face of the SOFP.

Assets “HFS”

PPE = RM1,200,000
Inventory = RM240,000
Liabilities = RM300,000
Revaluation surplus = RM550,000

SOFP extract as at 31/12/2028

RM
NCA
PPE X

CA
Inventory X
Cash at bank X
X

NCA HFS (1,200,000 + 240,000) 1,440,000

Total assets X

E&L
SC X
Reserve X
Amount recognized in equity relating to NCA HFS 550,000
X

NCL X
CL X
X
Liabilities related to disposal group 300,000
Total E&L X

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(B) DISCONTINUED OPERATION

Definition

A component of an entity that either has been disposed of in the period, or is classified as
“HFS”, and

(a) Represent a major line of business / geographical area that is being disposed of in a
single coordinated plan.

(b) The component has to be a CGU whose cash flows, operations & financial reporting
can be distinguish from the rest of the entity.

(c) Is a subsidiary acquired exclusively with a view to resale.

IFRS 5 prohibits the retroactive classification as a DO, when the discontinued criteria are met
after the end of the reporting period.

How to present DOs

Once you identify a DO, you should present it separately from other continuing operations in
your financial statements. Thus, the readers of your financial statements will be able to see
what you put away and what you keep going on in order to generate future profits and cash
flows.

(a) In the statement of comprehensive income:

A single amount comprising the total of:

(i) The post-tax profit or loss of DOs, and

(ii) The post-tax gain or loss recognized on the measurement to FV less costs to sell
a or on the disposal of assets or disposal groups.

The analysis of a single amount shall be reported in the notes or in the SOCI.

(b) In the statement of cash flows:

The net cash flows attributable to the operating, investing and financing activities of
DOs.

(c) In the statement of financial position:

NCA or assets of a disposal group classified as HFS separately from other assets.

The same applies for liabilities of a disposal group classified as HFS.

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PRESENTATION

Dolphin Bhd Group

SOPL FTYE 31/12/2028
RM
Continuing operations
Revenue X
COS (X)
GP X
Other income X
Distribution costs (X)
Admin exp (X)
Other exp (X)
Finance cost (X)
PBT X
IT exp (X)
Profit FTP from continuing operations (a) X

Discontinued operations
Profit FTP from DO * (b) X

Profit FTP (c = a + b) X

EPS from continuing operation X

EPS X

The required analysis would be given in the notes:

Discontinued operations
RM
Revenue X
COS (X)
GP X
Other income X
Distribution costs (X)
Admin exp (X)
Loss on remeasurement of assets held for disposal (X)
Finance cost (X)
PBT X
IT exp (X)
Profit FTP from discontinuing operations (b) X

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Alternate presentation:

Dolphin Bhd Group

SOPL FTYE 31/12/2028
Continuing DOs Total
operations
RM RM RM
Revenue X X X
COS (X) X X
GP X X
Other income X X X
Distribution costs (X) (X) (X)
Admin exp (X) (X) (X)
Other exp (X) (X) (X)
Finance cost (X) (X) (X)
Loss on remeasurement of assets held for disposal (X) (X)
PBT X X X
IT exp (X) (X) (X)
Profit FTP X X X

EPS from continuing operation X

EPS X

Additional Questions

Question 10

The Board of Ayalah approved the relocation of the HO site on 1 March 2018. The HO land
and building were renovated and upgraded in the year to 31 March 2018 with a view to
selling the site.

During the improvements, termites were found in the foundations of the main building. The
termite treatment, strengthening the foundations and renovations were completed on 1 June
2018.

As at 31 March 2018, the renovations had cost RM2.3 million and termite treatment and
strengthening the foundations, RM1 million. The CV of the HO land and building was RM5
million at 31 March 2018 before accounting for renovation. Ayalah moved the HO to the new
site on June 2018 and at the same time, the property was offered for sale at a price of RM10
million.

However, the market for commercial property had deteriorated significantly and as at 31
March 2019, a buyer for the property had not been found. At that time, the company did not
wish to reduce the price and hope that the market conditions would improve. On 20 April
2019, a bid of RM8.3 million was received for the property and eventually it was sold (net of
cost) for RM7.5 million on 1 June 2019.

The CV of the HO land and buildings was RM7 million at 31 March 2019.

NCA are shown in Ayalah’s FSs at historical cost. Year-end is 31 March.

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Required:

Discuss the accounting treatment of the property under IFRS5.

Answer

Under IFRS 5, a NCA qualifies as HFS if it is available for immediate sale in its present
condition subject to the usual selling terms. The company should have the intent and the
ability to sell the asset in its present condition.

At 31 March 2018, although the company ultimately wished to sell the property, it would be
unlikely to achieve this until the termites were dealt with and foundations strengthened and
renovation done.

Additionally, the company’s view was that the property should be sold when renovations
were completed which would have been at 1 June 2018.

Also, as at 31 March 2018, the company had not attempted to find a buyer for the property.

Hence, the property could not be classified as HFS at that date.

As at 31 March 2019, the property had not been sold although it had been on the market for
over nine months. The market conditions had deteriorated significantly and yet the company
did not wish to reduce the price. It seems as though the price asked for the property is in
excess of its FV especially as a bid of RM8.3 million was received shortly after the YE (20
April 2019). The property has been vacated and, therefore, is available for sale but the price
does not seem reasonable in relation to its current fair value (RM10 million price as opposed
to RM8.3 million bid and ultimate sale of RM7.5 million). Therefore, it would appear that at
31 March 2019, the intent to sell the asset might be questionable.

The property fails the test set out in IFRS 5 as regards the reasonableness of price and,
therefore, should not be classed as HFS.

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Question 11

Ice-Tree acquired a property on 1 January 2018 which it intended to sell. The property was
obtained as a result of a default on a loan agreement by a third party and was valued at RM30
million on that date which was offset against the loan.

The property was in a state of disrepair and Ice-Tree intended to complete the repairs before
selling the property. The repairs were completed on 31 January 2019.

The property was sold after costs for RM44 million on 10 March 2019. As at 31 December
2018, the property was classified as HFS and shown net of sale proceeds of RM44 million.

Property was depreciated at 5% p.a. on a straight-line basis and no depreciation had been
charged in the year. Year-end is 31 December.

Required:

Discuss the accounting treatment of the property.

Answer

To be classified as ‘HFS’ the asset must be available for immediate sale in its present
condition, subject to the usual selling terms and the sale must be highly probable. As 31
December 2018 the asset was not available for sale.

IFRS 5 also requires the asset to be disclosed at the lower of CA and FV less cost to sell. The
company used selling price which is incorrect.

Proper accounting treatment: record at cost and depreciate and reduce retained earnings by
the profit recognised (RM14 million) by classifying the asset at selling price.

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