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That’s why the standard IFRS 5 Non-Current Assets Held for Sale and Discontinued
Operations was issued – to highlight the results of discontinued operations and to
separate them from the results of ongoing or continuing activities.
So, if you or your company plans to sell some non-current assets and discontinue
some operations, then IFRS 5 is for you.
The only exception is when a company regularly sells assets normally considered
as non-current. In this case, these sales represent one of primary activities and the
related assets are inventories in fact. For example, a car dealer presents all vehicles
for resale under IAS 2 Inventories, not under IFRS 5.
Objective of IFRS 5
IFRS 5 focuses on 2 main areas:
1. It specifies the accounting treatment for assets (or disposal groups) held for
sale, and
2. It sets the presentation and disclosure requirements for discontinued
operations.
Let me point out that you should apply IFRS 5 for all non-current assets – no
exception.
The standard IFRS 5 lists some measurement exceptions and you can read about
them in the later paragraphs, but you still need to present and disclose the
information about these assets under IFRS 5.
When to classify an asset as held for sale
You should classify a non-current asset as held for sale if its carrying amount will be
recovered principally through a sale rather than continuing use.
For example, 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.
Why?
Because, you will recover its carrying amount through asset’s continuing use and
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 (as
specified below).
But, it also means, that you WILL need to assess the criteria for presenting the
abandoned asset or operation as discontinued operation.
When will an asset be recovered through a sale?
In other words, what are the conditions for classifying an asset as held for sale?
First of all, the asset or disposal group must be available for immediate sale in its
present conditions and the sale must be highly probable.
The similar criteria also apply to assets held for distribution to owners.
When you classify any of the above types of assets as assets held for sale, you
continue measuring them under the same accounting policies as before
classification (e.g. financial instrument held for sale 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.
Subsequently, after you classified an asset as held for sale, you should measure it at
lower of its carrying amount and fair value less costs to sell (except for
measurement exceptions listed above).
Impairment
With regard to any impairment, immediately before classification as held for sale,
the impairment is recognized in line with the applicable IFRSs, for example, under
IAS 36 for property, plant and equipment.
In this case, you would recognize any impairment loss in profit or loss, but
sometimes also in other comprehensive income – that’s when you apply revaluation
model for your property, plant and equipment and you have a revaluation surplus to
decrease.
After you classify an asset as held for sale, you would recognize any impairment
loss in profit or loss only.
What are discontinued operations
IFRS 5 specifies that you need to pay special attention to presenting any
discontinued operation. But, what is it?
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.
2. In the statement of cash flows: the net cash flows attributable to the
operating, investing and financing activities of discontinued operations. You
can present these disclosures in the notes or in the financial statements
themselves.
3. In the statement of financial position (IFRS5.38): you shall present a non-
current asset or assets of a disposal group classified as held for sale
separately from other assets. The same applies for liabilities of a disposal
group classified as held for sale.