IFRS 5: NON-CURRENT ASSETS

HELD FOR SALE

Overview of the topic

•Objective of IFRS 5
•Scope
•Definition
•Criteria
•Measurement
•Subsequent measurement

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 Objective of IFRS 5

•IFRS 5 deals with the classification,

presentation and measurement of:
•non-current assets held for sale, and
•disposal groups held for sale

Scope
•The IFRS 5 measurement requirements do
not apply to:
•Current assets
•Liabilities
•Scoped out non-current assets
•Deferred tax
•Employee benefit assets
•Financial assets as per IFRS 9
•Investment property (fair value model)
•Inventory
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 Scope
Take note that these non-current assets are
scoped-out (as pet the previous slide) only
from the measurement requirements of
IFRS 5. Thus, a non-current asset held for
sale would still be subject to the
classification, presentation and disclosure
requirements of IFRS 5.

Definitions
Non-current asset held for sale:
•An entity shall classify a non-current
asset (or disposal group) as held for sale
it its carrying amount will be recovered
principally through a sales transaction,
rather than through continuing use.

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 Criteria
The core criterion driving the classification
of a non-current asset (NCA) as ‘held for
sale’ is that it may only be classified as held
for sale when most of it’s carrying amount is
expected to be recovered through the
inflows from the sale of the NCA rather than
from the use thereof.

Criteria
An intention to sell an asset (as
opposed to using it) is not sufficient to
change its classification to held for sale
in terms of IFRS 5.
There are particular requirements that
must be met before an asset (or
disposal group) can be classified and
measured in terms of this standard.
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 Criteria
•If a non-current asset is to be abandoned, it
may not be classified as held for sale.
•The carrying amount will be recovered
principally through continuing use and not
through sale (does not meet the definition).
•Exception: If the abandoned asset complies
with the definition of a discontinued operation,
it is disclosed in terms of par .33 and .34

Criteria
The following criteria must be met for an
asset to be classified as a non-current asset
held for sale:
•Asset must be available for immediate
sale in its present condition
•The sale must be highly probable

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 Example 1
• An entity intends on selling a nuclear plant and has
entered into negotiations with a potential buyer.
• The purchaser will perform a due diligence (that is, a
check of the condition and other important aspects of
the nuclear plant). The due diligence is customary for
purchases and sales of nuclear plants, given the risks
associated with assets of this nature.

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Example 1
Is the nuclear asset available for immediate sale in its
present condition?

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 Example 1
• Even though the asset is not sold immediately as a
result of the time taken to complete the due diligence,
it is still available for immediate sale, as the sale is
subject to the completion of the due diligence.

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Explanatory example
If an entity wishes to sell a building but the sale will
only be concluded once its new building is complete,
the existing building will not be available for immediate
sale.

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 Criteria
(1) The appropriate level of management must be committed to
a plan to sell the asset
Highly probable
(2) An active program to locate a buyer and complete the plan
must have been initiated
(3) The asset must be actively marketed for sale at a price that is
reasonable in relation to its current fair value
(4) The sale should be expected to qualify for recognition as a
completed sale within one year from the date of classification
(5) Actions required to complete the plan should indicate that it
is unlikely that significant changes to the plan will be made or
that the plan will be withdrawn

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Criteria

For a sale to be highly probable, the following

criteria should be met:
• The appropriate level of management must be
committed to a plan to sell the asset:
• Management, with the necessary authority to
approve the action, must have committed
itself to a plan to sell: this often requires
the board of directors to have committed
themselves to the plan, but on occasion,
further approval must also be sought, for
example shareholder approval may also be
required before it can be said that there is an
appropriate level of commitment to the plan

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 Criteria

For a sale to be highly probable, the

following criteria should be met:
•An active program to locate a buyer
and complete the plan must have been
initiated.
•This simply means that the asset must
be actively marketed

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Criteria
•For a sale to be highly probable, the
following criteria should be met:
•The asset must be actively marketed for
sale at a price that is reasonable in
relation to its current fair value

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 Criteria
•For a sale to be highly probable, the following
criteria should be met:
•The sale should be expected to qualify for
recognition as a completed sale within one
year from the date of classification
• The sale must be expected to qualify for
recognition as a completed sale within one
year from the date of classification as ‘ held
for sale ’ , (periods longer than one year are
allowed under certain circumstances : these
are discussed below)

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Criteria
•For a sale to be highly probable, the following
criteria should be met:
•Actions required to complete the plan
should indicate that it is unlikely that
significant changes to the plan will be
made or that the plan will be withdrawn

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 Criteria
• Events or circumstances may extend the period to
complete the sale beyond one year, which would not
necessarily preclude an asset from being classified as held
for sale – provided:
• The delay is caused by events or circumstances
beyond the entity’s control; and
• There is sufficient evidence that the entity remains
committed to its plan to sell the asset
In other words, even if the sale will be completed
beyond one year, it may still be classified as held for
sale.

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Example 2
• On 1 April 2022 Taste acquired an office park with hopes of renting out
the space. The office park was purchased for R 1 300 000 .
Unfortunately, Taste did not do a proper viability study of the area.
Taste discovered that most companies are relocating from that area
because of the high crime rate and lack of water supply from the
municipality. Taste could not even manage to secure a tenant for 3
months.

• On 1 July 2022 the directors of Taste decided to sell the office park. The
resolution to sell the property was signed on 1 July 2022 by all the
directors and on the same date the office park was ready for immediate
sale.

• An advertisement to sell the property for R 1 000 000 was placed on 1

August 2022 on all major media platforms. 22

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 Example 2
• Management indicated that the sale will be concluded within a
year from the date that the advertisement was placed and that
they have no other intention but to dispose of the property.

• Required:
Discuss on which date the property should be classified in terms
of IFRS 5?

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Example 2
• Before the asset can be transfer from investment property to non-current asset
held for sale the following criteria’s must all be met:

Available for immediate sale

Sale is highly probable if the following conditions are present:
Management is committed to a plan to sell

An active program to locate a buyer is

initiated

Sale is probable within 12 months

Asset is actively marketed

Plan to sell is not likely to change

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 Example 2
Before the asset can be transfer from investment property to non-current asset
held for sale the following criteria’s must all be met:

Available for immediate sale The property was available for immediate sale on
1 July 2022
Sale is highly probable if the following conditions are present:

Management is committed to a plan to sell Management is committed to a plan to sell the

An active program to locate a buyer is initiated
Sale is probable within 12 months
Asset is actively marketed
Plan to sell is not likely to change
property because a resolution to sell the property
was signed on 1 July 2022 by all the directors
An advertisement to sell the property was placed on
1 August 2022 on all major media platforms
Management indicated that the sale will be
concluded within a year from the date that the
advertisement was placed
An advertisement to sell the property for
R 1 000 000 was placed on 1 August 2022 on all
major media platforms
Management indicated that they have no other
intention but to dispose of the property
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Measurement
• Assets that meet the criteria of held for sale are to
be measured at the lower of their carrying
amount (immediately before being classified as
held for sale) and fair value less costs to sell.
• Depreciation on assets of this nature ceases when
they are classified as held for sale.
• Assets that meet the criteria for classification as
held for sale are to be presented separately in the
statement of financial position.

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 Measurement

The measurement process can be split into

three different time intervals :
(1) The time period prior to the asset
being classified as held for sale
(2) The point in time at which the asset
is classified as held for sale and
(3) The period of time until the asset is
actually sold
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Measurement
Immediately before classification as held for sale
• The non-current asset must be accounted for in
accordance with the applicable IFRS Standard:
• For example, if an item of machinery is to be
classified as held for sale, it must be depreciated in
accordance with IAS 16 until the classification and
revalued in accordance with IAS 16 (if the entity
has selected the revaluation model and its policy is
to revalue at that time). It must also be tested for
impairment with reference to its recoverable
amount in accordance with IAS 36 (Impairment of
assets).

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 Measurement

On classification as held for sale

• The non-current asset is remeasured to the lower
of its carrying amount and its fair value less costs
to sell
• Any loss on the remeasurement of the non-
current asset to its fair value less cost to sell is
recognised in profit or loss
• If the sale is expected to occur beyond one year,
the entity should measure the cost to sell at their
present value.
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Measurement
On date of classification as NCAHFS
• Before initial classification as held for sale – measure in
accordance with the relevant standard applicable to the
asset (for example IAS 16 & IAS 36)
• Once this measurement has been done, the asset should
be classified as held for sale transferring it to current
assets
• After reclassification as held for sale – measure the asset
at the lower of its carrying amount and its fair value less
cost to sell (asset should no longer be depreciated or
amortised)

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 Subsequent measurement
Subsequent to classification as held for sale, one of
three events can occur. The measurement of the
non-current asset held for sale is therefore
dependent on any one of the following events:
(1) The non-current asset is sold
(2) The non-current asset is not yet sold, but
classification as held for sale is still
appropriate
(3) There is a change in the plan to sell the
non-current asset
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Subsequent measurement
The non-current asset is sold
• Any gain or loss not yet recognised by the date of
sale is recognised in profit or loss when the non-
current asset is derecognised.
• Gain or loss = difference between net disposal
proceeds and the carrying amount of the asset.

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 Subsequent measurement
Not sold yet, NCAHFS still appropriate
• Depreciation ceases when a non-current asset is classified
as held for sale. This makes sense, as depreciation is the
expense recognised as a result of the continued usage of
an asset.
• If the non-current asset has not yet been sold at the
reporting date, IFRS 5 requires the fair value less costs to
sell to be re-evaluated. This implies either of the following:
• Additional impairment losses may arise if the fair value
less costs to sell has reduced.
• Impairment losses could be reversed if the fair value
less costs to sell improves.
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Subsequent measurement
The decision to sell the non-current asset is reversed
• If the non-current asset no longer meets the criteria to be
classified as held for sale, its classification as such ceases.
The non-current asset that ceases to be classified as held
for sale is remeasured to the lower of the following two
values:
• Its recoverable amount on the date that classification
as held for sale is no longer appropriate
• Its carrying amount before classification as held for
sale, adjusted by any depreciation, amortisation or
revaluations that would have been recognised had the
asset not been classified as held for sale.

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 Example 3

A Ltd acquires an item of machinery on 1 January

20x8 at a cost of R1 million. The machine is
expected to have a useful life of ten years and no
residual value. On 1 July 20x9, the machine met
the criteria necessary in order to be classified as
held for sale. At that date, the machine had a fair
value less costs to sell of R750 000. This amount
also reflected the recoverable amount of the
machine immediately prior to classification as held
for sale. A Ltd accounts for machinery using the
cost model.
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Example 3
1. On which date should the machine be classified as
NCAHFS?

2. What is the carrying amount on this date?

3. What is the recoverable amount?

4. Do we have impairment and in terms of which

standard?

5. Provide the journal entries for 20x9.

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 Example 3

1. On which date should the machine be classified

as NCAHFS?
- 1 July 20x9

2. What is the carrying amount on this date?

- R1 000 000 / 10 x 8.5 = R850 000

3. Recoverable amount?
R750 000
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Example 3

4. Yes, the carrying amount > the recoverable amount.

R850 000 – R750 000 = R100 000

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 Example 3
DR CR
R R
30 June 20x9
DR Depreciation (P/L) 50 000
CR Machine: Accumulated depreciation (SFP) 50 000
(R1 000 000 / 10 x 6/12)
Depreciation for six months to 30 June 20x9

DR Impairment loss (P/L) 100 000

CR Machine: Acc. depreciation and impairment 100 000
(SFP)
Impairment to recoverable amount immediately prior to classification as held
for sale
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Example 3

DR CR
DR Non-current asset held for sale (SFP) 750 000
DR Machine: Accumulated depreciation and 250 000
impairment (SFP)
CR Machine: Cost (SFP) 1 000 000
Reclassification as held for sale

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 Example 4

Using the same information as in the previous example,

prepare the additional journal entry or entries required as
at 31 December 20x9, assuming that on that date, each of
the following independent scenarios applied:

(1) The machine is sold for R700 000.

(2) The machine is still classified as held for sale, but its
fair value less costs to sell amounts to R700 000.
(3) Classification as held for sale is no longer
appropriate. The recoverable amount of the
machine is R700 000.

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Example 4 – scenario 1

The following journal entry is processed on the sale of the

asset:
DR CR

DR Bank (SoFP) 700 000

DR Loss on sale of asset (P/L) 50 000
CR Non-current asset held for sale (SoFP) 750 000
Sale of non-current asset held for sale

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 Example 4 – scenario 2

The fair value less costs to sell is re-evaluated on 31

December 20x9. As the fair value less costs to sell has
decreased by R 50 000 to R 700 000, an additional
impairment loss of R 50 000 is recognised:

DR CR

DR Impairment loss (P/L) 50 000

CR Non-current asset held for sale (SoFP) 50 000
Additional impairment loss on non-current asset held for sale

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Example 3 – scenario 3

As classification as held for sale is no longer appropriate,

the asset needs to be reclassified as property, plant and
equipment.

At the lower of:

(1) Recoverable amount of R700 000
(2) Historical carrying amount (i.e. what would the carrying
amount have been if asset had been PPE all along)
=R1 000 000 / 10 x 8
=R800 000

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 Example 4 – scenario 3

The asset is remeasured to the lower of R 700 000 (FV – CTS

on date of reclassification) and R 800 000 (which is the
carrying amount that the asset would have had on 31
December 20x9, if it had never been classified as held for
sale
DR CR

DR Impairment loss (P/L) 50 000

CR Non-current asset held for sale (SoFP) 50 000
Remeasurement of non-current asset held for sale

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Example 3 – scenario 3

The lower is therefore the carrying amount and the

following journal needs to be provided for:

DR CR

DR Machine: Cost (SoFP) 1 000 000

CR Non-current asset held for sale (SoFP) 700 000
CR Machine: Acc. depreciation & impairment 300 000
losses (SoFP)
Non-current asset held for sale reclassified as property, plant and
equipment
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 Presentation
• An entity should present –
A non-current asset classified as held for sale
separately from other assets in the statement of
financial position

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Disclosure
The following must be disclosed in the notes in the
period in which a non-current asset/disposal group
has either been classified as held for sale or sold:

• A description of the NCA/DG

• A description of the facts and circumstances of
the sale
• The expected timing and manner of disposal
• The impairment loss recognised

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Disclosure
The following must be disclosed in the notes in the
period in which a non-current asset has either
been classified as held for sale or sold:

• A description of the non-current asset

• A description of the facts and circumstances of
the sale
• The expected timing and manner of disposal

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 Disclosure
The following must be disclosed in the notes in the
period in which a non-current asset has either
been classified as held for sale or sold:

• The impairment loss recognised

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Disclosure

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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.

• Assets and liabilities should not be offset.

• The disposal group includes goodwill acquired in a

business combination.
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 Example: Disposal Group
• Yearend = 31 December
• IFRS 5 date = 30 September
• Assets and related liabilities being disposed of:
CA on date of reclassification
Land 150 000
Buildings 230 000
Equipment 185 000
Inventories 87 000
Investment property (FV model) 290 000
Payables (related liability) 39 000

• Fair value on reclassification date: R 861 000

• Costs to sell: R 15 000
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Example: Disposal Group

REQUIRED:

• Calculate and allocate the impairment loss on 30 September.

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 Example: Disposal Group
• Assets and related liabilities being disposed of:
CA on date of reclassification
Land 150 000
Buildings 230 000
Equipment 185 000
Inventories 87 000
Investment property (FV model) 290 000
Payables (related liability) (39 000)
TOTAL 903 000

• CA: 903 000

• FV – CTS: 861 000 – 15 000 = 846 000
• Lower: FV – CTS
• Impairment loss: 903 000 – 846 000 = 57 000
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Example: Disposal Group

• Assets and related liabilities being disposed of:
CA on date of Allocation of CA after
reclassification Impairment loss allocation
Land 150 000 15 133 134 867
Buildings 230 000 23 204 206 796
Equipment 185 000 18 664 166 336
Inventories 87 000 *out of scope 87 000
Investment property (FV model) 290 000 *out of scope 290 000

Payables (related liability) (39 000) *out of scope (39 000)

TOTAL 903 000 57 000 846 000

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 Example: Disposal Group
REQUIRED:

• Assuming that the CA of Inventories, Investment property

and payables is R 83 000, R 292 000 and R 30 000
respectively on 31 December, calculate the carrying amount
of the disposal group. The FV less CTS at this date was
determined as R 895 000.

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Example: Disposal Group

• Assets and related liabilities being disposed of:
CA on 31 Allocation of CA after
December Impairment loss allocation
Land 134 867 11 151 146 018
Buildings 206 796 17 098 223 894
Equipment 166 336 13 753 180 089
Inventories 83 000 *out of scope 83 000
Investment property (FV model) 292 000 *out of scope 292 000

Payables (related liability) (30 000) *out of scope (30 000)

TOTAL 852 999 42 001 895 000

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 Example: Disposal Group
Be mindful!!
• Limit individual CA’s to lower of
• RA if determinable
• What CA would have been if no impairment was
recognised

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Deferred tax
• When an asset is classified as held for sale, it should
always be measured at the lower of its carrying
amount and fair value less cost to sell, which might
result in a reduction in the carrying amount of the
asset.

• As the tax base of the asset is not affected by the

classification as held for sale, any adjustment to the
carrying amount of the asset will give rise to a
temporary difference.

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 Deferred tax
• As impairment losses arising from the classification
as held for sale are always accounted for in
profit/loss, the related deferred tax should also be
accounted for in profit/loss.

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Example: Deferred Tax

Single Asset:
Date of purchase 1 January 2010
Cost R 100 000 (excludes VAT)
Depreciation rate 10% per annum on straight line method

12C allowances 20% per annum, not apportioned for a part

of the year
Reclassification date 31 March 2013
Fair value and costs to sell on 31 March 2013 FV = R 55 000 (excludes VAT)
CTS = R 3 100
Fair value and costs to sell on 31 December FV = R 65 000 (excludes VAT)
2013 (year end) CTS = R 4 200
REQUIRED:
Using the balance sheet method, calculate the deferred tax balance on the asset on the
following dates:
• 31/12/2012
• 31/03/2013 – date of reclassification
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 Example: Deferred Tax

CA TB TD DT A/ (L) @ 28%
Cost : 1/01/2010 100 000 100 000
31/12/2012 70 000 40 000 30 000 -8 400
31/03/2013 51 900 20 000 31 900 -8 932

Calculations:
CA: 70 000 – (100 000 x 10% x 3/12) = 67 500
FV - CTS: 55 000 – 3 100 = 51 900
Impairment loss: 15 600
CA after impairment: 67 500 – 15 600 = 51 900

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