IFRS 5

Non-current Assets Held For

Sale And Discontinued
Operations

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Learning Objectives
At the completion of studying
chapter, you will be able to:

this

the accounting for assets held for

sale, and the presentation and disclosure of
discontinued operations.
distinguish between the accounting treatment
of for assets held for sale and discontinued
operations under US GAAP and IFRS
Understand

The objective of IFRS 5

Initial classification requirements

Classify a non-current asset (disposal group) as held for sale if its

carrying amount will be recovered principally through a sale
transaction rather than through continuing use .
IFRS 5 specifies two main requirements to initially classify asset(s)
as held for sale:
the asset(s) must be available for immediate sale in its
(their) present condition.

there is no significant reason why the sale could not take

place immediately.
the sale must be highly probable.
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Held-for-sale classification

IFRS 5 sets a few criteria for the sale to be highly probable:

Management must be committed to a plan to sell the asset
An active program to find a buyer must have been initiated
The asset must be actively marketed for sale at a price
reasonable to its current fair value
The sale is expected to be completed within 1 year from the
date of classification
Significant changes to the plan are unlikely.
The similar criteria also apply to assets held for distribution to
owners.
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Test your understanding-held for sale

classification
Example 1: An entity has agreed in a directors meeting to sell a
building, and has tentatively started looking for a buyer for the
building. The price of the building has been fixed at Br. 4million and
a surveyor has valued the building based on market prices at Br.
3.6million. The entity will continue to use the building until another
building has been found with equivalent facilities, and in a suitable
location for the office staff, who will not be relocated until the new
building has been found. Additionally, the entity is planning to sell
part of its business and has actively marketed the business at a fair
price but, before the business can be sold, government approval.
This means that the sale time is difficult to determine and it may take
longer than one year to sell the disposal group.
Could both the building and disposal group be classified has held for
sale?
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Held for Sale Classification

Exercise 1 Ethio Sugar Corporation wants to sell one of its
PPE, which requires regulatory approval from the
federal government of Ethiopia. The government will
not consider any approval request until the
Corporation can document a firm purchase
commitment from a third party. Ethio Sugar
Corporation believes it is highly probable that it will
obtain such a commitment within one year. Since
government approval may cause a delay beyond oneyear, can Ethio Sugar Corporation continue to classify
the PPE as held for sale?

Held for Sale Classification

Exercise 2 An Entity ceases to use a manufacturing plant
because demand has declined. However, the
plant is maintained in workable condition and it
is expected to be brought back into use if
demand picks up.
How should the plant be treated on the book of
the entity?
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Measurement

Once you classify an asset or a disposal group as held for sale,

then you should measure it under IFRS 5. However, IFRS 5 lists a
few measurement exceptions (IFRS 5.5):
Deferred tax assets (IAS 12 Income Taxes).
Assets arising from employee benefits (IAS 19 Employee
Benefits).
Financial assets within the scope of IFRS 9 Financial Instruments.
Noncurrent assets that are accounted for in accordance with the
fair value model in IAS 40 Investment Property.
Noncurrent assets that are measured at fair value less costs to
sell in accordance with IAS 41 Agriculture.
Contractual rights under insurance contracts as defined in IFRS 4
Insurance Contracts.
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Measurement-IFRS 5

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For assets carried at fair value prior to initial classification, the

requirement to deduct costs to sell from fair value may result in an
immediate charge to profit or loss.
Non-current assets or disposal groups that are classified as held11
for sale are not depreciated and amortized.

Measurement
A

gain for any subsequent increase in fair

value less costs to sell of an asset can be
recognised in the profit or loss
to the extent that it is not in excess of the
cumulative impairment loss that has been
recognised in accordance with IFRS5 or
previously in accordance with IAS 36.
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Test your understanding

-Measuring non-current assets
held1:for
sale
Example
A Building
was originally acquired for Br. 400,000. Some years
later, after cumulative depreciation of Br. 110,000 has been recognized,
the building is classified as held for sale. At the time of classification as
held for sale:

carrying amount is Br. 290,000; and

fair value less costs to sell is assessed at Br. 300,000.

Required:
1. at what amount the property should be carried at on classification as
held for sale?

2. At the next reporting date, if the property market has declined and fair
value less costs to sell is reassessed at Br. 285,000, at what amount
should the property be carried.
3. Subsequently, if the property is sold for Br. 288,000, how much
gain/loss is to be recognized?
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Exercise 1 - solution
a) At lower of carrying cost and FMVLCS. Hence, it is a
comparison between Br. 290,000 and Br. 300,000.
Accordingly, the answer is at Br. 290,000
b) Same guiding rule applies. Hence, at Br. 285,000
c) If sold at Br. 288,000, the gain is Br. 3,000

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Example 2
A property is purchased for Br. 500,000 on 1 July 2011. The useful life of the property
is 20 years (zero residual value). The property is measured subsequently at
depreciated historical cost.
On 30 December 2013, it is decided that the property is to be classified as held for
sale (classification criteria are met).
An impairment assessment on 30 December 2013 determines the recoverable value
(based on value in use) to be Br. 400,000.
The fair value less costs to sell on 30 December 2013 is Br. 390,000.
Requirement
a)What is the carrying value of the property immediately before re-classification as
held for sale on 30 December 2013?
b)What are the required accounting entries in 2013 in respect of the re-classification of
the asset as held for sale?

Exercise 2 - Solution
a) Carrying amount before reclassification at Dec. 31, 2013.
= Cost Depreciation (2011, 2012 & 2013 (only six months))
= Br. 500,000 (25,000 25,000 12,500)
= Br. 437,500

b) Impairment loss (Expense) 47,500

Property: Acc. Impairment loss .. 47,500

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Example 3
At 30 June 2014, a decision was taken to classify property as
(criteria are met). The property was originally acquired for
Cumulative depreciation to 30 June 2014 amounted to
Recoverable amount (VIU) was determined at that date to be

held for sale

Br. 400,000.
Br.110,000.
Br. 255,000.

Upon re-classification as held for sale, the FVLCS was assessed at Br.
250,000. At the next reporting date, 30 June 2015,
the FVLCS is
reassessed at Br. 265,000.
Requirement
a)What is the carrying value of the property immediately before reclassification as held for sale on 30 June 2014?
b)Impairment loss just before reclassification
c)What are the required accounting entries in 2015 in respect of the reclassification of the asset as held for sale?
d)Impairment loss under IFRS 5
e)How much Gain should be reported at 30 June 2015

Disposal group concept

A 'disposal group' is a group of assets, possibly with
some associated liabilities, which an entity intends to
dispose of in a single transaction.
A disposal group is sometimes but not always a
discontinued operation.
The measurement basis required for non-current
assets classified as held for sale is applied to the
group as a whole, and
any resulting impairment loss reduces the carrying
amount of the non-current assets in the disposal group
in the order of allocation required by IAS 36. [IFRS5.4]

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Presentation

In the statement of financial position (IFRS5.38): you

shall present a noncurrent asset or assets of a
disposal group classified as held for sale separately
from other assets. The same applies for liabilities of a
disposal group classified as held for sale.
The major classes of assets and liabilities classified
as held for sale are separately disclosed either in the
statement of financial position or in the notes (except
where the disposal group is a newly acquired
subsidiary that meets the criteria to be classified as
held for sale on acquisition).
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Classification as Discontinuing
Operation
A discontinued operation is a component of an entity that
either has been disposed of or is classified as held for sale,
and:
represents either a separate major line of business or a
geographical area of operations
is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of
operations, or
is a subsidiary acquired exclusively with a view to resale
and the disposal involves loss of control.
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.
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Classification as discontinuing
Operation

Ethio Sugar Corporation suffers an apparently permanent

and substantial decline in its productivity in one of its branches,
due to environmental changes in the area, which makes
planting cane impossible . Accordingly, The Corporation plans
to stop operating and close the branch by the end of the year.
Ethio Sugar Corporation should account of the branch as a:
A. Discontinued operation.
B. Disposal group
C. Non-current asset held for sale
D. Other

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Classification as discontinuing
Operation
Ethio Sugar Corporation designates one of its factory
(subsidiary) as held for sale. At this point, the
Corporation must measure the subsidiary at the
lower of its carrying amount or its fair value less
costs to sell. The carrying amount of the subsidiary is
2 billion birr. Its fair value is 1.8 billion birr, and the
costs to sell are 100 million birr.
How much is an impairment loss?
Answer: 300 million [2 bill (1.8 bill 0.1 bill)]

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How to present discontinued

operations
Once you identify a discontinued operation, you should present it
separately from other continuing operations in your financial statements.
More specifically, an entity shall disclose (IFRS 5.33):
1. In the statement of comprehensive income: 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 recognized on the measurement to fair value
less costs to sell or on the disposal of assets or disposal groups.
2. In the statement of cash flows: the net cash flows attributable to the
operating, investing and financing activities of discontinued operations.
3. the amount of income from continuing operations and from discontinued
operations attributable to owners of the parent, presented either in the
notes or in the statement of comprehensive income.

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IFRS 5 requires the following disclosures about assets (or

Disclosures
disposal groups) that are held for sale:
description of the non-current asset or disposal group
description of facts and circumstances of the sale
(disposal) and the expected timing
impairment losses and reversals, if any, and where in the
statement of comprehensive income they are recognised
if applicable, the reportable segment in which the noncurrent asset (or disposal group) is presented in
accordance withIFRS 8Operating Segments

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US GAAP and IFRS 5

Similarities

Under both U.S. GAAP and IFRS, a discontinued

operation is a component of an entity that has been
disposed of or is held for sale.
Both require discontinued operations to be presented
separately on the face of the statement of earnings or
comprehensive income.

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Differences
Unit of
Account

US GAAP

IFRS

It is a component, which
may be an operating
segment, a reporting
unit, a subsidiary or an
asset group depending
on the facts and
circumstances.

It is a component, which
comprises operations and cash
flows that can be clearly
distinguished, operationally and
for financial reporting purposes,
from the rest of the entity. A
component will have been a
CGU or a group of CGUs when
it was held for use.

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Summary : Assets held for sale

To be classified as held for sale:
Available for immediate sale in present condition
Sale highly probable
Transfer to be completed within one year

Where assets &

liabilities to be
disposed of in a single
transaction treat as a
disposal group

Carry at lower of carrying value & FVLCS

Do not depreciate
Present separately on face of SFP

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Summary : Discontinued Operations

Discontinued is a component of an entity that has either been disposed
of or is classified as held for sale and:
Represents a major line of business or geographical area; or
Part of a single coordinated plan of disposal; or
Is a subsidiary acquired exclusively with a view to resale.

Disclose as a single amount on the face of the SPLOCI, the sum of:
Post-tax profit or loss of discontinued operation; and
Post-tax gain or loss recognised on the disposal of the asset.

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Thank You!
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