IFRS 5-Non-Current Assets Held for Sale and Discontinued Operations

Q. No 1: Welcome Limited runs two separate divisions i.e. Sport Division and Technology
Division. It is engaged in manufacturing of cricket balls and telephone sets under the umbrella of
Sport Division and Technology Division correspondingly. During the year 2016, the Chief
Financial Officer (CFO) informed the management that due to change in paradigm of cricket in
modern World and shifting of base business towards Europe, the Sport Division is no longer
profitable.
In December 2016, a meeting of the Board of Directors was held to get approval from the
directors, for disposal of Sport Division. Finally, on December 15, 2016, the Board formally
decided to sell the division to a large exporting multinational Company at a reasonable price
within six months. At this date the Board also committed to a formal plan, detailing the
execution of the Sale.
The CFO submitted the following data to the Board of Directors in respect of Sport Division for
the year ended December 31, 2016.
 Revenue of the Sport Division is Rs. 4,283,560 and cost of sales is Rs. 1,635,455 for the
year.
 Other expenses and finance cost is 67% and 8.5% of Sport Division's revenue
respectively.
 Tax expenses are Rs. 58,000.
 Other information extracted from the Statement of Financial Position include:
Rupees
Inventory 543,423
Trade and other receivables 210,066
Property, plant and equipment 2,100,552
Bank Overdraft 856,007

Other Information:
 The contract will be signed on February 28, 2017, and it was agreed by the buyer that
they will take over the division on April 15, 2017.
 In terms of the contract, equipment is deemed to be worth at Rs. 2,648,105 and all other
assets and liabilities are deemed to be worth at their carrying amounts.
 The financial year of the company ended on December 31, 2016.

Required:
In the light of IFRS - Non-Current Assets Held for Sale and Discontinued Operations, discuss
the following:
a) From which financial year, Sport Division will be classified as discontinued operation
and would be disclosed separately in the financial statements of the Company.
b) Prepare an appropriate disclosure with regard to Sport Division as discontinued operation
in the financial statements of Welcome Limited as at December 31, 2016.
 c) How the information related to discontinued operation will affect the format for the
presentation of the financial statements of the current year and comparative figures.

Q. No 2: In November 2015 Maria & Company decided to sell one of its offices and move the
office staff at factory premises located in industrial area. The price of the office was fixed at Rs.
40 million by the management but the surveyor valued the office at Rs. 35 million based on its
market price. Moreover, the company would continue to use the office until the office area is
constructed in factory premises, which is expected to be completed in June 2016.
Required:
a) Whether or not the office will be classified as held for sales in the Statement of Financial
Position for the year ended December 31, 2015? Substantiate the answer with reasons.
b) Briefly describe what you understand by 'sale to be highly probable', one of the criteria
for assets to be classified as non-current assets held for sale, in the light of IFRS 5-Non
Current Assets held for Sale and Discontinued Operation.

Q. No 03: Saul operates its business through a number of divisions. It has a year end of 31
December. Set out below are extracts from the draft financial statements of Saul for the year
ended 31 December Year 1.

Statement of profit or loss for the year

ended 31 December Year 1

Rs.000
Revenue 3,900
Cost of sales (2,500)

Gross profit 1,400

Distribution costs (300)
Administrative (800)
expenses

Profit before tax 300

Income tax expense (90)

Profit for the period 210

Statement of financial position at 31 December Year 1

Assets Rs.000 Rs.000
Non-current assets
Property, plant and equipment 1,900
Intangible assets 40
1,940
Current assets
Inventories 350
Trade and other receivables 190
Cash 90
630

Total assets 2,570

Equity and liabilities

Equity
Share capital 600
Retained earnings 1,700
2,300
Current liabilities
Trade and other payables 195
Current tax payable 75
270

Total equity and liabilities 2,570

On 30 November Year 1 Saul made the decision to close Division A, which is located in a
different part of the country and covers a separate major line of business. This decision was
immediately announced to the press and to the workforce and, by the end of Year 1, a buyer had
been found.
The directors of Saul have calculated the following.
15% of the entity’s income and expenses for the year was attributable to Division A.
No tax is attributable to Division A.
Property, plant and equipment of Rs. 510,000 and payables of Rs. 10,000 in the above statement
of financial position relate to Division A. The fair value minus costs to sell of the property, plant
and equipment is Rs. 450,000.

Required
Redraft the above financial statements to meet the provisions of IFRS 5: Non-current assets held
for sale and discontinued operations. Work to the nearest Rs.000.

Q. No 04(a): State the definition of both non-current assets held for sale and discontinued
operations and explain the usefulness of information for discontinued operations.
Q. No 04(b): Shahid Holdings is in the process of preparing its financial statements for the year
ended 31 October 2016. The company’s main activity is in the travel industry mainly selling
package holidays (flights and accommodation) to the general public through the Internet and
retail travel agencies. During the current year the number of holidays sold by travel agencies
declined dramatically and the directors decided at a board meeting on 15 October 2016 to cease
marketing holidays through its chain of travel agents and sell off the related high-street premises.
Immediately after the meeting the travel agencies’ staff and suppliers were notified of the
situation and an announcement was made in the press. The directors wish to show the travel
agencies’ results as a discontinued operation in the financial statements to 31 October 2016. Due
to the declining business of the travel agents, on 1 August 2016 (three months before the year-
end) Shahid Holdings expanded its Internet operations to offer car hire facilities to purchasers of
its Internet holidays.

The following are Shahid Holdings’s summarized statement of profit or loss results – years
ended:
31 October 2016 31 October 2015

Travel
Internet Car Hire Total Total
Agency

Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000

Revenue 23,000 14,000 2,000 39,000 40,000

Cost of sales (18,000) (16,500) (1,500) (36,000) (32,000)

Gross
5,000 (2,500) (500) 3,000 8,000
Profit/(loss)
Operating
(1,000) (1,500) (100) (2,600) (2,000)
Expenses
Profit/(loss)
4,000 (4,000) 400 400 6,000
before tax

The results for the travel agencies for the year ended 31 October 2015 were: revenue Rs. 18
million, cost of sales Rs. 15 million and operating expenses of Rs. 1·5 million.

Required
a) Discuss whether the directors’ wish to show the travel agencies’ results as a discontinued
operation is justifiable.
b) Assuming the closure of the travel agencies is a discontinued operation, prepare the
(summarised) statement of profit or loss of Shahid Holdings for the year ended 31
October 2016 together with its comparatives.
Note: Shahid Holdings discloses the analysis of its discontinued operations on the face of its
statement of profit or loss.

Q No. 5: On June 01, 2017, the Board of Directors of Starlight Company Ltd. has approved a
plan to sell its sports goods manufacturing unit. It has started negotiations with Moonlight Sports
Ltd. for disposal of the unit.

The company does not intend to discontinue the operations currently being carried out in the
unit. As at June 30, 2017, Starlight Ltd. is having backlog of orders from customers. The
company will not be able to transfer the unit to the buyer until it ceases the operations of the unit
and has completed the customer’s pending orders. The pending orders are expected to be
completed by September 30, 2017.

Required:

Whether the sports good manufacturing unit can be classified as ‘held for sale’ at June 30, 2017?
Discuss the treatment of the above traction in the financial statements as per IFRS – Non-Current
Assets Held for Sale and Discontinued Operations.

Q No. 6:

(a) List the Criteria for an asset to be classified as “Asset Held for Sale” Under IFRS 5 ~ Non-
current Assets Held for Sales and Discounted Operations.

(b) On July 01, 2008, ABC Limited had purchased a building for its factory for Rs.500 million.
The building had an expected useful life of 50 years with no residual value.

On June 30, 2018, the market value of the building was Rs.380 million. The management of the
company decided to sell the factory building at the market value. There were three buyers willing
to buy the building at this price and the management was confident that they would be able to
sell it quickly. It was further estimated that the selling cost would be around 5% of the selling
price. The company uses straight line method of depreciation.

Required:

How the building will be treated in the company’s Statement of Financial Position as at June 30,
2018.
Note: All numerical examples of IFRS-5 already sent are also part of the
practice questions.