(Intermediate Accounting 3)

LECTURE AID

2019

ZEUS VERNON B. MILLAN

Chapter 4 Non-current assets Held for Sale and
Discontinued Operations
Related standard: PFRS 5 Non-current Assets Held for Sale and
Discontinued Operations

Learning Objectives
• Describe the requirements for classifying assets as “held for
sale.”
• State the initial and subsequent measurement of “held for
sale” assets.
• Differentiate the following: (1) Noncurrent asset held for sale,
(2) Disposal group, and (3) Discontinued operations.
• State the presentation requirements of a discontinued
operation.

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)

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.

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)

Scope

• 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

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Vernon B. Millan)
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.

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Vernon B. Millan)
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v. It is unlikely that the plan of sale will be withdrawn.

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Vernon B. Millan)
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)

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Vernon B. Millan)
Event after 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.

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Vernon B. Millan)
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.

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Vernon B. Millan)
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.

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Vernon B. Millan)
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.

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Vernon B. Millan)
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

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Vernon B. Millan)
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.

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INTERMEDIATE ACCTG 3 (By: Zeus
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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.

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Vernon B. Millan)
Direct costs associated to decision to dispose
a component
• Costs or adjustments directly associated with the decision to dispose
a component should be recognized and shown as part of
discontinued operations. Examples of such costs include:
1. such items as severance pay or employee termination costs,
2. additional pension costs,
3. employee relocation expenses, and
4. future rentals on long-term leases

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Vernon B. Millan)
Comparative information

• If, in the current year, a component of an entity is classified as

discontinued operation, an entity shall re-present the
disclosures for prior periods presented in the financial statements
so that the disclosures relate to all operations that have been
discontinued by the reporting period for the latest period presented.

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Vernon B. Millan)
Events after the reporting period

• If the criteria for classification as discontinued operation are met

after the reporting period but before the financial statements are
authorized for issue, the entity shall disclose the information in the
notes as non-adjusting event after the reporting period.

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Vernon B. Millan)
Cessation of classification as held for sale: Effect on comparative
statement of financial position

• The cessation of classification as discontinued operation is

accounted for retrospectively; while
• The cessation of classification as held for sale (non-current assets
and disposal groups that are not components of an entity) is
accounted for prospectively.

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Vernon B. Millan)
FS presentation

• Non-current assets held for sale and assets and liabilities of disposal
groups are presented as current assets (current liabilities) but
separately from the other assets and liabilities in the statement of
financial position.
• An entity shall not offset the assets and liabilities of a disposal
group.

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Vernon B. Millan)
 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)

 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)

 END

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)