1st video

PFRS 5 - Non-current Assets Held for Sale and Discontinued Operations

BACKGROUND

 PFRS 5 was issued on March 2004.

 However, it came into application and was effective on 1 January 2005.

 This was issued to highlight the results of every business from continued
operations and to separate them from the results of the ongoing activities. 

 PFRS 5 achieves substantial convergence for the Impairment or Disposal of

Long-Lived Assets with respect to the timing of the classification of operations as
discontinued operations and the presentation of such operations.

 With respect to long-lived assets that are not being disposed of, the impairment
recognition and measurement standards are significantly different from those
in PAS 36 - Impairment of Assets

 OBJECTIVES

The objective of PFRS 5 focuses on two main ideas:

1. To specify the accounting for assets held for sale
2. To set the presentation and disclosure requirements for discontinued operations.

PFRS 5 also requires  :

assets that meet the criteria to be classified as held for sale that is to be measured
at the (lower of carrying amount and fair value less costs to sell)
depreciation on assets to cease
assets that meet the criteria to be classified as held for sale that is presented
separately in the statement of financial position 
results of discontinued operations to be presented separately in statement of
comprehensive income

SCOPE

The classification and presentation of PFRS 5 will apply to all recognized non-current
assets and disposal groups of an entity except for the following standards:
o Deferred Tax Assets
 o Assets arising from employee benefits
o Financial assets under PFRS 9
o Non-current assets with fair value model in PAS 40
o Non-current assets measured at fair value less cost sell in PAS 41
o Groups of Contracts under PFRS 17

Assets classified as non-current shall not be reclassified as current assets until

they meet the criteria to be classified as held for sale.

Sometimes an entity disposes of a group of assets, possibly with some directly

associated liabilities, together in a single transaction. Such a disposal group may
be a group of
o cash-generating units
o a single cash-generating unit
o or part of a cash-generating unit

2nd video

PFRS 5 RELATING TO ASSETS HELD FOR SALE

( CLASSIFICATIONS)

KEY PROVISIONS

Conditions must be met for an asset to be classified as held for sale :

management is committed to a plan to sell the asset

is available for immediate sale 
an active programmed to locate a buyer is initiated
the sale is highly probable, within 12 months of classification as held for sale
(subject to limited exceptions) 
the asset is being actively marketed for sale at a sales price reasonable in
relation to its fair value 
actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn

The assets need to be disposed of through sale.

Representation :

Non-current assets or disposal groups = Held for sale >> recovered through a sale
  The asset (or disposal group) must be available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such
assets (or disposal groups) and its sale must be highly probable.

 An entity that is committed to a sale involving loss of control of a subsidiary

classifies all of the assets and liabilities of that subsidiary as held for sale, even if
the entity will retain a non-controlling interest in its former subsidiary after the
sale.

 A non-current asset (or disposal group) is classified as held for distribution to

owners when the entity is committed to distribute the asset (or disposal group) to
the owners.

ABANDONED NON- CURRENT ASSET

 An entity shall not account for a non-current asset that has been temporarily
taken out of use as if it had been abandoned.

 Therefore, operations that are expected to be wound down or abandoned would

not meet the definition of assets held for sale but may be classified as
discontinued once abandoned.

3rd video

PFRS 5 RELATING TO ASSETS HELD FOR SALE

( MEASUREMENT)

PRINCIPLES OF ASSET’S MEASUREMENT

The following principles apply :

Before classification as held for sale

 Immediately before the initial classification of the asset as held for sale, the
carrying amount of the asset will be measured in accordance with applicable
PFRS standard. Resulting adjustments are also recognized in accordance with
applicableI PFRS. Thus, we need to apply normal rules.

For example, just measure property, plant and equipment in line with PAS 16 or
whatever method we applied.

After classification as held for sale

  Non-current assets or disposal groups that are classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.

PRINCIPLES OF IMPAIRMENT

Impairment must be considered both at the time of classification as held for sale and
subsequently :

Before classification as held for sale

 Immediately prior to classifying an asset or disposal group as held for sale,
impairment is measured and recognized in accordance with the applicable
PFRS standard. For example, PAS 38 for intangible assets.

Any impairment loss is recognized in profit or loss unless the asset had
been measured at revalued amount under PAS 16 or PAS 38, in which case
the impairment is treated as a revaluation decrease.

After classification as held for sale. 

Calculate any impairment loss based on the difference between the adjusted
carrying amounts of the asset/disposal group and fair value less costs to
sell.

Any impairment loss that arises by using the measurement principles in PFRS 5
must be recognized always in profit or loss, even for assets previously carried
at revalued amounts.

 Assets carried at fair value prior to initial classification. 

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

 Subsequent increases in fair value. 

A gain for any subsequent increase in fair value less costs to sell of an asset can
be recognized in the profit or loss.

ALWAYS BE REMINDED THAT PFRS 5 MEASUREMENT :

“Do not charge any depreciation!”

4TH video

PFRS 5 RELATING TO ASSETS HELD FOR SALE

( PRESENTATION & DISCLOSURES)

PRESENTATION

In the Statement of Financial Position, the following are to be presented:

non-current assets of a disposal group must be presented separately from other

assets
the same applies for liabilities of a disposal group classified as held for sale

DISCLOSURES

PFRS 5 requires the following disclosures about assets (or disposal groups) that are
held for sale :

description of the non-current asset or disposal group 

description of facts and circumstances of the sale (disposal) and the expected
timing 
impairment losses and reversals, if any, and where in the statement of
comprehensive income they are recognized 
if applicable, the reportable segment in which the non-current asset (or disposal
group) is presented in accordance with PFRS 8

ADDITIONAL DISCLOSURES

The following additional disclosures are required:

adjustments made in the current period to amounts disclosed as a discontinued

operation in prior periods must be separately disclosed

if an entity ceases to classify a component as held for sale, the results of that
component previously presented in discontinued operations must be reclassified
and included in income from continuing operations for all periods presented
5TH video

PFRS 5 RELATING TO DISCONTINUED OPERATION

(KEY PROVISIONS)

Discontinued operation =

is a component of an entity that 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 plan to dispose of, or
 Is a subsidiary acquired solely with a view to resale

PFRS 5 requires discontinued operations to be presented separately in the financial

statements

to keep the readers of the financial statements informed about those operations
the entity has discontinued

and those operations the entity is continuing with in order to generate future
profits and cash flows.

PFRS 5 requires discontinued operations to be presented as follows :

Statement of Profit and Loss and Other Comprehensive Income is a single amount
comprising the total of :

The post-tax profit or loss of the discontinued operation,

The post-tax gain or loss recognized on the measurement to fair value less costs
to sell, and
The post-tax gain or loss recognized on the disposal of assets or the disposal
group making up the discontinued operation.

Thus, the analysis of the single amount can be presented in the notes or on the face of
the statement of profit or loss and other comprehensive income.

However,

In the Statement of Cash Flows, the following are to be presented:

net cash flow attributable to the operating

net cash flow attributable to the financing Of all discontinued operations
 net cash flow attributable to the investing

6TH video

PFRS 5 : DEFINITION OF TERMS

cash generating unit

it is the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets

costs to sell

it is incremental costs directly attributable to the disposal of an asset (or disposal

group), excluding finance costs and income tax expense.

current asset

an asset is current when it expects to realize the asset, or intends to sell or consume it,
in its normal operating cycle, it holds the asset primarily for the purpose of trading; it
expects to realize the asset within twelve months after the reporting period; or the asset
is cash or a cash unless the asset is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting period

discontinued operation

A component of an entity that either has been disposed of or is classified as held for
sale following the 3 characteristics by its nature presented on the previous video.

disposal group

A group of assets to be disposed of, by sale or otherwise, together as a group in a

single transaction, and liabilities directly associated with those assets that will be
transferred in the transaction

fair value

is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date

highly probable

Significantly more likely than probable

non-current asset

An asset that does not meet the definition of a current asset

recoverable amount

The higher of an asset’s fair value less costs of disposal and its value in use

value in use

The present value of estimated future cash flows expected to arise from the continuing
use of an asset and from its disposal at the end of its useful life.