NCA Held For Sale

Chapter 22
Non-current Assets Held for

Sale and Discontinued
Operations
© 2008-16 Nelson Lam and Peter Lau Intermediate Financial Reporting: An IFRS Perspective (Chapter 22) - 1
Agenda
1. Applicable Standard and Scope

2. Disposal Group
3. Classification of Assets Held for Sale
4. Measurement of Assets Held for Sale
5. Presentation and Disclosures for Assets Held for Sale
6. Presentation of Discontinued Operations
• IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations sets out
– the accounting for non-current assets held for
sale and
– the presentation and disclosure of discontinued
operations.
Classification • The classification and presentation requirements of
IFRS 5 apply
– To all recognised non-current assets and
Measurement
– To all disposal groups of an entity,
• The measurement requirements of IFRS 5
Presentation – do not have the same scope of coverage.
• The measurement requirements of IFRS 5 apply to
all recognised non-current assets and disposal
groups, except for the following items:
1. Deferred tax assets (IAS 12 Income Taxes).
2. Assets arising from employee benefits (IAS 19).
3. Financial assets within the scope of IAS 39.
4. Non-current assets that are accounted for in
accordance with the fair value model in IAS 40.
5. Non-current assets that are measured at fair value less
Measurement estimated point-of-sale costs in accordance with IAS 41
Agriculture.
6. Contractual rights under insurance contracts as defined
in IFRS 4 Insurance Contracts.
• The measurement provisions of IFRS 5 do not apply
to the above assets either as individual assets or as
part of a disposal group.
• The classification, presentation and measurement
requirements in IFRS 5 are also applicable to a non-
current asset or disposal group that is classified as
held for distribution to owners acting in their capacity
as owners.
– Described as “non-current asset or disposal group held
Classification for distribution to owners” or simply “assets held for
distribution to owners”.
Measurement
Presentation
• Assets are classified as current or non-current based
Strict Criteria on their definitions set out in IAS 1
Imposed • IFRS 5 precisely requires that non-current assets
cannot be reclassified as current assets
– until they meet the criteria to be classified as held for
sale in accordance with IFRS 5
Classification • More restrictive situation is when an entity has
acquired an asset exclusively with a view to resale.
– This asset cannot be classified as current if this asset
should belong to a class that the entity would normally
regard this class as non-current.
– Unless the asset also meets the criteria to be classified
Presentation as held for sale in accordance with IFRS 5, the entity
cannot classify the asset as current.
2. Disposal Group
• The criteria in IFRS 5 are
– not only applicable to individual non-current assets,
– but also applicable to group of assets, together with
their directly associated liabilities, goodwill and
reserves.
• A term called “disposal group” is introduced in
Classification IFRS 5.
Presentation
2. Disposal Group
Disposal • a group of assets to be disposed of, by sale or

Group otherwise, together as a group in a single
transaction, and
• liabilities directly associated with those assets that
will be transferred in the transaction
Classification • The group includes goodwill acquired in a

business combination
– if the group is a cash-generating unit (CGU)
to which goodwill has been allocated in
accordance with the requirements of IAS 36,
or
Presentation – if it is an operation within such a CGU
• It may be a group of CGU, a single CGU, or part
of a CGU.
2. Disposal Group
Disposal • If a non-current asset within the scope of the

Group measurement requirements of IFRS 5 is part of a
disposal group,
– the measurement requirements of IFRS 5
apply to the group as a whole,
so that the group is measured at the lower of
Classification • its carrying amount and
• fair value less costs to sell. (the
requirements for measurement to be discussed
later)
Presentation
Classification
Measurement
Presentation
• An entity is required to classify a non-current asset or
disposal group as held for sale if its carrying amount will be
recovered principally through a sale transaction rather than
through continuing use.
• For this to be the case, IFRS 5 further requires that the asset
or disposal group should fulfil both of following two criteria:
1. The asset or disposal group must be Available for
available for immediate sale, and Immediate Sale
2. Its sale must be highly probable. Highly Probable
• To be classified as held for 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) Available for
Immediate Sale
• Highly probable
– Significantly more likely than probable
– Probable  more likely than not
• For the sale to be highly probable
Appropriate level of management must be committed to a
plan to sell the asset (or disposal group)
Active programme to locate a buyer and complete the
plan must have been initiated
Asset (or disposal group) must be actively marketed for Highly Probable
sale at a price that is reasonable in relation to its current
fair value
The sale expected to qualify for recognition as a Extension to Complete
completed sale within 1 year from the date of
classification, except as permitted under IFRS 5; and Beyond 1 year
Unlikely that significant changes to the plan will be made

or that the plan will be withdrawn
• Events or circumstances may extend the period
to complete the sale beyond one year.
• 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 Year
1. the delay is caused by events or circumstances
beyond the entity’s control and
2. there is sufficient evidence that the entity
remains committed to its plan to sell Highly Probable
the asset or disposal group.
Extension to Complete
Beyond 1 year
Sale transactions include

– exchanges of non-current assets for other non-current assets
when the exchange has commercial substance in
accordance with IAS 16 Property, Plant and Equipment.
Non-current asset (or disposal group) acquired Available for

exclusively with a view to its subsequent disposal Immediate Sale
shall be classified as held for sale at the
acquisition date only if Highly Probable
– the one-year requirement is met and
– it is highly probable that any other criteria that are
not met at that date will be met within a short period
following the acquisition (usually within 3 months)
Assets (or disposal group) to be abandoned

• Not classify them as held for sale
• Because its carrying amount will be
– recovered principally through continuing use,
– not recovered principally through a sale
transaction
• If such disposal group meets the criteria as an
operation (what is “an operation”? to be discussed)
– the entity still presents the results and cash
flows of the disposal group as
• discontinued operations at the date on which
it ceases to be used
Assets (or disposal group) to be abandoned

• Non-current assets (or disposal groups) to be abandoned include:
– non-current assets (disposal group)
• used to the end of their economic life
• closed rather than sold
• An entity is not allowed to account for a non-current asset Not within
that has been temporarily taken out of use as if it had been IFRS 5
abandoned.
Loss of Control of Subsidiary and Assets Held for Distribution

to Owners
• In applying the criteria of non-current assets held for sale in IFRS
5, specific cases are deemed to have the same effect and the
relevant assets or group of assets have to be classified in the
similar manner as held for sale.
• They include
1. Commitment to a sale plan involving loss of control of a
subsidiary and
2. Non-current assets or disposal group held for distribution to
owners.
• When a non-current asset or disposal group meets
the criteria to be classified as held for sale, an entity
is required to measure such asset or disposal group
classified as held for sale at the lower of
– its carrying amount and
– fair value less costs to sell.
Classification
Measurement
Presentation
• Depreciation or amortisation on a non-current asset should be ceased
while the asset is classified as held for sale or while it is part of a
disposal group classified as held for sale.
• Interest and other expenses attributable to the liabilities of a disposal
group classified as held for sale should continuously be recognised.
• The write-down to fair value less costs to sell for an asset or a disposal
group held for sale implies an impairment loss on the asset or the
disposal group similar to those under IAS 36 Impairment of Assets (see
Chapter 8).
Implication on newly acquired asset
• If a newly acquired asset (or disposal group) meets the criteria to be
classified as held for sale, applying the measurement requirement of
IFRS 5 will result in
– the asset (or disposal group) being measured on initial recognition
at the lower of its
• carrying amount had it not been so classified (for example, cost)
and
• fair value less costs to sell.
• Hence, if the asset (or disposal group) is acquired as part of a business
combination, it shall be measured at
– fair value less costs to sell
– instead of, fair value
Immediately Before • Immediately before the initial classification

Reclassification of the asset (or disposal group) as held for
sale
– the carrying amounts of the asset (or all the
Measurement after assets and liabilities in the group) shall be
Reclassification
measured in accordance with applicable
IFRSs
Disposal group containing assets/liabilities

not within scope of IFRS 5
Other assets or disposal groups
• Some assets and liabilities included in disposal group

may not be measured in accordance with IFRS 5
– because they are not within the measurement
requirements of IFRS 5
• For example:
‒ Deferred tax assets
‒ Assets arising from employee benefits
‒ Financial assets within the scope of IAS 39
‒ Investment property accounted for in fair value
model in IAS 40
‒ Agriculture measured at fair value less estimated
point-of-sale costs under IAS 41
‒ Contractual rights under insurance contracts as
defined in IFRS 4
Example
• Entity ABC classified a disposal group in accordance

with IFRS 5
• The disposal group includes
– An investment property carried at fair value
– A property classified under property, plant and equipment
– Rental receivables from the lessee
• Which items are not within the scope of the
measurement requirements of IFRS 5?
• Investment property carried at fair value

under IAS 40
• Rental receivables under IAS 39
• If there are such assets and liabilities
(i.e. assets and liabilities that are not within the scope of the
measurement requirements of IFRS 5 but are included in a
disposal group)
• Firstly, the carrying amounts of such assets and
liabilities
– are re-measured in accordance with applicable IFRSs
before the fair value less costs to sell of the disposal group Re-measure
is remeasured individually
• Then, the whole disposal group
– are remeasured at lower of the whole disposal group’s Re-measure
carrying amount or fair value less costs to sell whole group
i.e. then follows
Recognition of impairment losses and reversals

• IAS 36 becomes ineffective on those assets or disposal groups when
they are classified as held for sale under IFRS 5
• in recognition of impairment loss under IFRS 5
– fair value less costs to sell is used
– instead of recoverable amount
• an entity
– recognises an impairment loss for
• any initial or subsequent write-down of the asset (or disposal group) to
fair value less costs to sell
– also recognises a gain for
• any subsequent increase in fair value less costs to sell of an asset,
– but not in excess of the cumulative impairment loss that has been recognised
either under IFRS 5 or IAS 36

• The impairment loss (or any subsequent gain)
recognised for a disposal group reduces (or
increases) the carrying amount of the non-
current assets in the group
– that are within the scope of the measurement
requirements of IFRS 5, in the order of allocation
set out in IAS 36 Impairment of Assets, that is ……
What are such

requirements?

• IAS 36 Impairment of Assets, requires the allocation of
the impairment loss in the following order:
 Recognition of impairment loss
a) first, to reduce the carrying amount of any
goodwill allocated to the disposal group; and
b) then, to the other non-current assets of the Goodwill
first
disposal group pro rata on the basis of the carrying
amount of each asset in the group.
Other on
 Reversal of impairment loss pro rata
– allocated to the assets of the group, except for
goodwill, pro rata with the carrying amounts of those
assets.
Example
Carrying amount at the
Carrying amount as
reporting date before
remeasured immediately
classification as
before classification as
held for sale
held for sale
Goodwill $ 1,500
$ 1,500
Property, plant and equipment
(carried at revalued amounts) 4,600
4,000
(carried at cost) 5,700
5,700
Inventory 2,400
2,200
AFS financial assets
© 2008-16 Nelson Lam and Peter Lau 1,800Reporting: An IFRS Perspective (Chapter 22) - 29
Intermediate Financial
Example
Immediately Before • The entity recognises the loss of $1,100

Reclassification ($16,000 - $14,900) immediately before
classifying the disposal group as held for sale.
Measurement after • Since an entity measures a disposal group

Reclassification classified as held for sale at the lower of its
carrying amount and fair value less costs to
sell
• the entity recognises an impairment loss of
$1,900 ($14,900 - $13,000) when the
group is initially classified as held for sale.
Then, allocate $1,900 ……
Example
Carrying amount as
remeasured immediately
Carrying amount
before classification as Allocated
after allocation of
held for sale impairment loss
impairment loss
Goodwill $ 1,500 $ (1,500)

$ 0
(carried at revalued amounts) 4,000 (165)
3,835
(carried at cost) 5,700 (235)
• Firstly, the impairment loss reduces any 5,465 amount of goodwill
•Inventory
Then, the residual loss is allocated to other 2,200
non-current assets -
pro rata based on their carrying amounts2,200 (no allocation is made
AFS financial
to current assetsinventory and AFS financial
assets, 1,500assets) -
© 2008-16 Nelson Lam and Peter Lau 1,500
Intermediate Financial Reporting: An IFRS Perspective (Chapter 22) - 31
Changes to a plan of sale

 If the criteria to be classified as held for sale
are no longer met
– the entity ceases to classify the asset as held for sale
– then, an entity measures such non-current asset that ceases to be
classified as held for sale at the lower of:
• its carrying amount before the asset was classified as held for sale
– adjusted for any depreciation, amortisation or revaluations that would
have been recognised had the asset not been classified as held for
sale, and
• its recoverable amount at the date of the subsequent decision not to sell
– Any consequential adjustment shall be included
• in income from continuing operations in the period in which the criteria
on asset to be classified as held for sale are no longer met
• unless revaluation under IAS 16/38 is adopted before classification as
held for sale
Example
• At beginning of Year 1, ATA acquired a motor vehicle with an estimated

useful of 10 years at $800,000 (with no residual value)
• After the receipt of the vehicle 5 days later, ATA decided to sell it
• The planned disposal fulfilled the  Vehicle is carried at $800,000 and
criteria under IFRS 5 and the fair classified as non-current asset
value less estimated costs to sell is held for sale.
same as cost.
• A year later, ATA decided to withdraw  Cease to classify it as held for
sale
the sale and use the vehicle for its
• had the asset not been classified
own travelling purpose.
as held for sale, the carrying
• At that date, ATA estimates that the amount would be $720,000
recoverable amount may be: (depreciated over 10 years)
1) $750,000, or Vehicle carried at $720K and adjustment to P/L is $80K
2) $600,000 Vehicle carried at $600K and adjustment to P/L is $200K
• Calculate the necessary adjustments?
Changes to a plan of sale

 Removal from disposal group
• If an entity removes an individual asset or liability
from a disposal group classified as held for sale
– the remaining assets and liabilities of the disposal group to be sold
shall continue to be measured as a group only if
• the group (as a whole) meets the criteria on asset to be
classified as held for sale
– Otherwise, the remaining non-current assets of the group that
individually meet the criteria to be classified as held for sale
• shall be measured individually at the lower of their carrying
amounts and fair values less costs to sell at that date.
– Any non-current assets that do not meet the criteria shall cease to
be classified as held for sale
5. Presentation of Assets Held for Sale
Classification
Measurement
Presentation
• In the statement of financial position, an entity is required:
1. To present a non-current asset classified as held for sale Presented
and the assets of a disposal group classified as held for separately
sale separately from other assets
2. To present the liabilities of a disposal group classified as held
for sale separately from other liabilities
3. To neither offset nor present those assets and liabilities as Offset not
a single amount. allowed
4. To present separately any cumulative income or expense
recognised directly in equity relating to a non-current asset or
disposal group classified as held for sale.
• Either in the statement of financial position or in the notes, Disclose
1. an entity is required to separately disclose the major
major classes
classes of assets and liabilities classified as held for sale,
1. except for the newly acquired subsidiary that meets the
criteria to be classified as a disposal group held for sale on
acquisition.
• Prior period’s presentation not be revised
 An entity is not allowed to reclassify or re-present
amounts presented for non-current assets (or for
the assets and liabilities of disposal groups)
classified as held for sale in the statements of
financial position for prior periods to reflect the
classification in the statement of financial position
for the latest period presented
• Prior period’s presentation not be revised
‒ An entity is not allowed to reclassify or re-present
amounts presented for non-current assets (or for
the assets and liabilities of disposal groups)
classified as held for sale in the statements of
financial position for prior periods to reflect the
classification in the statement of financial position
for the latest period presented
• Gains or Losses Relating to Continuing Operations
‒ Any gain or loss on the remeasurement of a non-
current asset (or disposal group) classified as held
for sale that does not meet the definition of a
discontinued operation
 be included in profit or loss from continuing
operations
• An entity shall disclose the following information in the notes in the
period in which a non-current asset (or disposal group) has been either
classified as held for sale or sold:
a) a description of the non-current asset (or disposal group);
b) a description of the facts and circumstances of the sale, or leading to the
expected disposal, and the expected manner and timing of that disposal;
c) the gain or loss recognised in respect of the impairment loss (or reversal)
and, if not separately presented in the statement of comprehensive
income, the caption in the statement of comprehensive income that
includes that gain or loss;
d) if applicable, the segment in which the non-current asset (or disposal
group) is presented
6. Present Discontinued Operations
• A discontinued operation is either
– a component of an entity or
– an entity’s disposal group to be abandoned
if the component or the group meets certain conditions
and criteria.
A component of an entity is defined as
operations and cash flows that can be clearly
Component of an entity distinguished, operationally and for financial
• is a discontinued operation if: reporting purposes, from the rest of the
entity.
1. Firstly, it either has been disposed of or is
classified as held for sale; and
2. Secondly, it meets one of the following three
criteria:
a. it represents a separate major line of
business or geographical area of
operations,
b. it is part of a single co-ordinated plan to
dispose of a separate major line of business
or geographical area of operations or
c. it is a subsidiary acquired exclusively with a
view to resale.
Disposal group to be abandoned

• Is also classified as discontinued operations at the
date on which it ceases to be used when the group
meets the following three criteria:
a. it represents a separate major line of business or
geographical area of operations,
b. it is part of a single co-ordinated plan to dispose of a
separate major line of business or geographical area of
operations or
c. it is a subsidiary acquired exclusively with a view to
resale.
• In the statement of comprehensive income, an entity is
required to present a single amount comprising the total of:
1. the post-tax profit or loss of discontinued operations and
2. the post-tax gain or loss recognised on the measurement to fair
value less costs to sell or on the disposal of the assets or
disposal group(s) constituting the discontinued operation.
• Either in the notes or in the statement of comprehensive
income, an entity is required to present or disclose an
analysis of the single amount disclosed above into:
1. the revenue, expenses and pre-tax profit or loss of discontinued
operations;
2. the related income tax expense as required by IAS 12;
3. the gain or loss recognised on the measurement to fair value
less costs to sell or on the disposal of the assets or disposal
group(s) constituting the discontinued operation; and
4. the related income tax expense as required by IAS 12.
• Either in the notes or in the financial statements, an entity is
required to present
1. The net cash flows attributable to the operating, investing and
financing activities of discontinued operations. These
disclosures are also not required for disposal groups that are
newly acquired subsidiaries that meet the criteria to be
classified as held for sale on acquisition.
2. The amount of income from continuing operations and from
discontinued operations attributable to owners of the parent.
• Other disclosures
Presenting Subsequent Adjustments

– After the discontinued operation had been presented,
adjustments to those presented amounts may still be
occurred in subsequent periods.
– In those subsequent periods, the adjustments directly
related to the disposal of the discontinued operation
should be classified separately in discontinued operations.
– The nature and amount of such adjustments should be
disclosed.
Cease to be Held for Sale

• If an entity ceases to classify a component of an entity as
held for sale,
‒ the results of operations of the component previously
presented in discontinued operations in accordance
with IFRS 5 should be reclassified and included in
income from continuing operations for all periods
presented.
• The amounts for prior periods should be described as
having been re-presented.
• An entity is prohibited to have a retroactive classification of
an operation as discontinued in the current year, when the
criteria for that classification are not met until after the
reporting period.

NCA Held For Sale

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

NCA Held For Sale

Uploaded by

Copyright:

Available Formats

Chapter 22

Non-current Assets Held for

1. Applicable Standard and Scope

Disposal • a group of assets to be disposed of, by sale or

Classification • The group includes goodwill acquired in a

Disposal • If a non-current asset within the scope of the

Unlikely that significant changes to the plan will be made

Sale transactions include

Non-current asset (or disposal group) acquired Available for

Assets (or disposal group) to be abandoned

Assets (or disposal group) to be abandoned

Loss of Control of Subsidiary and Assets Held for Distribution

Immediately Before • Immediately before the initial classification

Disposal group containing assets/liabilities

Other assets or disposal groups

• Some assets and liabilities included in disposal group

• Entity ABC classified a disposal group in accordance

• Investment property carried at fair value

Other assets or disposal groups

Recognition of impairment losses and reversals

Other assets or disposal groups

Recognition of impairment losses and reversals

What are such

Other assets or disposal groups

Recognition of impairment losses and reversals

Immediately Before • The entity recognises the loss of $1,100

Measurement after • Since an entity measures a disposal group

Then, allocate $1,900 ……

Goodwill $ 1,500 $ (1,500)

Changes to a plan of sale

• At beginning of Year 1, ATA acquired a motor vehicle with an estimated

Changes to a plan of sale

Disposal group to be abandoned

Presenting Subsequent Adjustments

Cease to be Held for Sale

You might also like