PFRS 5.

NONCURRENT ASSETS
HELD FOR SALE AND
DISCONTINUED OPERATIONS
CORE PRINCIPLE
A noncurrent asset is presented in the classified
statement of financial position as current asset
only when it qualifies to be classified as “held for
sale” in accordance with PFRS 5.
NONCURRENT ASSETS WITHIN
THE SCOPE OF PFRS 5
PFRS 5 applies to the following non-current assets:
1. Property, plant and equipment
2. Investment property measured under the Cost
model
3. Investments in associate or subsidiary or joint
venture
4. Intangible assets
CLASSIFICATION OF NON-CURRENT ASSETS
(OR DISPOSAL GROUPS) AS HELD FOR SALE
A non-current asset (or disposal group) is classified as
held for sale or held for distribution to owners if its
carrying amount will be recovered principally
through a sale transaction rather than through
continuing use.
CLASSIFICATION OF NON-CURRENT ASSETS
(OR DISPOSAL GROUPS) AS HELD FOR SALE
CLASSIFICATION ASSET(S) BEING SOLD PRESENTATION
Non-current asset held Statement of financial
A single non-current asset
for sale position
A group of assets (e.g.
equipment and inventories
Disposal group held for Statement of financial
and payables directly
sale position
related to the equipment
and inventories)
Statement of financial
A component of an entity
Discontinued operation position and Statement of
(e.g. a branch)
profit or loss and OCI
CONDITIONS FOR CLASSIFICATION
AS HELD FOR SALE
A non-current asset (or disposal group) is classified as “held for sale” if
all of the following conditions are met:
1. The asset or disposal group is available for immediate sale in its
present condition subject only to terms that are usual and
customary; and
2. The sale is highly probable (i.e., significantly more likely than not).
i. Management is committed to a plan to sell the asset;
ii. An active program to locate a buyer has been initiated;
iii. The sale price is reasonable in relation to its current fair value;
iv. The sale is expected to be completed within one year; and
v. It is unlikely that the plan of sale will be withdrawn
EXCEPTION TO THE ONE-YEAR
REQUIREMENT
An extension of the period required to complete a sale
does not preclude an asset (or disposal group) from
being classified as held for sale if:
1. the delay is attributable to events or circumstances
beyond the entity’s control; and
2. there is sufficient evidence that the entity remains
committed to its plan to sell the asset (or disposal
group)
EVENT AFTER THE REPORTING
PERIOD
If the criteria for classification as held for sale are
met after the reporting period, an entity shall
not classify a non-current asset (or disposal
group) as held for sale in those financial
statements when issued.

Meaning, the event is treated as a non-adjusting

event after the reporting period.
NON-CURRENT ASSETS THAT ARE
TO BE ABANDONED
• An entity shall not classify as held for sale a non-
current asset (or disposal group) that is to be
abandoned since the asset’s carrying amount will be
recovered through continuing use rather than
principally through a sale.
• An entity shall not account for a non-current asset
that has been temporarily taken out of use as if it had
been abandoned.
INITIAL AND SUBSEQUENT
MEASUREMENT
• Lower of carrying amount and fair value less cost to
sell.
• A write-down to fair value less cost to sell, and related
reversal thereof, is recognized in profit or loss.
• Reversal of impairment is recognized as gain to the
extent of cumulative impairment loss that has been
recognized.
• Depreciation (amortization) ceases during the period
an asset is classified as held for sale.
PROBLEM 3: EXERCISES (No. 1)
On December 31, 2020, an entity classifies a building with an
original cost of P20M, carrying amount of P8M and
remaining useful life of 8 years as held for sale. The entity
uses the straight line method of depreciation with no
residual value for this asset. The fair value of the building on
December 31, 2020 is P7M while cost to sell are estimated at
P200K. The building is being marketed at a sale price of P7M.

Requirement: Prepare the journal entries needed on

December 31, 2020.
PROBLEM 3: EXERCISES (No. 1) (cont’d)
On December 31, 2021, the building remains
unsold. The fair value of the machinery on
December 31, 2021 is P6.8M while costs to sell are
estimated at P200,000. The entity decreased the
sales price to P6M.

Requirement: Prepare the journal entries needed on

December 31, 2021.
PROBLEM 3: EXERCISES (No. 1) (cont’d)
On December 31, 2022, the building still remains
unsold. The fair value of the building on December
31, 2022 is P8.8M while costs to sell are estimated
at P200,000. The failure to locate the buyer and
complete the sale is beyond the entity’s control. The
entity further decrease the sales price to P5.8M.

Requirement: Prepare the journal entries needed on

December 31, 2022.
PROBLEM 3: EXERCISES (No. 1) (cont’d)
On December 31, 2023, the building remains
unsold. The fair value of the building on December
31, 2023 is P9M while costs to sell are estimated at
P200K. The entity further decrease the sale price.

Requirement: Prepare the journal entries needed on

December 31, 2023.
PROBLEM 3: EXERCISES (No. 3)
The statements of financial position and profit or loss of an entity on
December 31, 2020 shows the following information:
Cash and Cash equivalents 1,500,000 Revenue 5,600,000
Trade and other receivables 3,000,000 Cost of sales (2,000,000)
Inventories 9,000,000 Gross profit 3,600,000
Investment property- cost model 3,500,000 Distribution costs (780,000)
Investment in associate 2,000,000
Adminstrative expense (900,000)
PPE 12,500,000
Total assets 31,500,000 Impairment loss (reversal) on
assets held for sale
Trade and other payables 12,250,000 Finance costs (300,000)
Current tax payable 4,500,000 Share of profit of associates 240,000
Deferred tax liability 1,750,000 Profit from continuing operations 1,860,000
Ordinary share capital 5,000,000 Discontinued operations:
Retained earnings 6,750,000 Profit from discontinued operations
Other components of equity 1,250,000 Profit for the period 1,860,000
Total liabilities and equity 31,500,000
PROBLEM 3: EXERCISES (No. 3) (cont’d)
On December 31, 2020, the entity commits to plan to sell an equipment
with carrying amount of P2.8M. The following will be sold together with
the equipment:
• accounts receivable with carrying amount of P200,000,
• inventories with carrying amount of P560,000 and,
• accounts payable with carrying amount of P360,000.
The entity determines that the equipment has a fair value less cost to sell
of P1.6M. The carrying amounts of other assets and the liability
approximate their fair value less costs to sell. All the conditions of PFRS 5
are met.

Prepare the December 31, 2020 statement of financial position and

statement of profit or loss of the entity.
CHANGES TO A PLAN OF SALE
A non-current asset that ceases to be classified as held
for sale shall be measured at the lower of the asset’s:
1. Carrying amount before it was classified as held
for sale, adjusted for any depreciation, amortization
or revaluation that would have been recognized had
the asset not been classified as held for sale, and
2. Recoverable amount at the date of subsequent
decision not to sell.
ILLUSTRATION
On December 31, 2020, ABC Co. classified its building with a
carrying amount of P400,000 and fair value less costs to sell of
P330,000 as held for sale. Impairment loss of P70,000 was
recognized on that date. The building has a remaining useful life of 4
years and it was depreciated using the straight-line method.

As of December 31, 2021, the building was not yet sold and
management decided not to sell the building anymore. The fair
value less cost to sell of the building on December 31, 2021 is
P310,000 while the value in use is P305,000.

Compute for the measurement of the building upon its

reclassification back to PPE on December 31, 2021.
DISCONTINUED OPERATIONS
A discontinued operation is a component of an entity that
either has been disposed of or is classified as held for sale,
and
1. Represents a major line of business or geographical
area of operations;
2. Is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of
operations; or
3. Is a subsidiary acquired exclusively with a view to
resale.
COMPONENT OF AN ENTITY
A component of an entity comprises operations
and cash flows that can be clearly distinguished,
operationally and for financial reporting
purposes, from the rest of the entity. It can be
cash generating unit or group of cash generating
units.
PRESENTATION OF
DISCONTINUED OPERATIONS
• The results of operations of the discontinued
operations, including impairment losses and actual
gain on disposal, is presented as a single amount, net
of tax, after profit or loss from continuing operations.
• If a component of an entity qualified as discontinued
operation during the year, all of its results of
operations, before and after classification date, shall
be classified as discontinued operations.