CONCEPTUAL FRAMEWORK &

ACCOUNTING STANDARDS

MODULE 7 – NONCURRENT
ASSETS HELD FOR SALE
Noncurrent asset
• Asset that does not meet the definition of a current asset.

• May be an individual asset, like land and building, or a disposal

group.

• A disposal group is a group of assets to be disposed of, by sale

or otherwise, together as a group in a single transaction, and
liabilities directly associated with those assets that will be
transferred in the transaction.
Noncurrent asset held for sale
• PFRS 5, paragraph 6, provides that a noncurrent asset or disposal group is
classified as held for sale if the carrying amount will be recovered principally
through a sale transaction rather than through continuing use.

• This simply means that the entity does not intend to use the asset as part
of the on-going business but instead intends to sell it and recover the
carrying amount principally through sale.

• A noncurrent asset or disposal group shall be classified as held for sale if

the following conditions are present:
(1.) It is available for immediate sale in the present condition
(current condition of the asset should be adequate to be effective
“sold as seen”)
(2.) The sale must be highly probable.
Noncurrent asset held for sale
For the sale to be HIGHLY PROBABLE, the following conditions must be met:

a.) Management must be committed to a plan to sell the asset or disposal group.

b.) An active program to locate a buyer and complete the plan must have been
initiated.

c.) The sale is expected to be a “completed sale” within one year from the
date of classification as held for sale.

d.) The asset or disposal group must be actively marketed for sale at a sale price
that is reasonable in relation to the fair value.

e.) Actions acquired to complete the plan indicate that it is unlikely that the plan
will be significantly changed or withdrawn.
Noncurrent asset held for sale
• Noncurrent asset or disposal group classified as held for sale shall be
measured at: Carrying amount OR Fair Value less Cost of disposal
whichever is LOWER.

• Noncurrent asset or disposal group classified as held for sale shall not be
depreciated.

• If the fair value less cost of disposal is lower than carrying amount of the
asset or disposal group, the writedown to fair value less cost of disposal is
treated as an impairment loss.

• If the noncurrent asset is a disposal group, the impairment loss is

apportioned across the assets based on carrying amount.

• If subsequently there is an increase in the fair value less cost of disposal,

the entity shall recognize a gain but nit in excess of any impairment loss
previously recognized.
Illustration: Problem
On January 01, 2019, an entity acquired an equipment at a cost of
P5,000,000 to be used in the ordinary course of business. The
equipment has an estimated useful life of 10 years and a residual value
of P500,000.
On January 01, 2022, the equipment was classified as held for sale. On
such date, the fair value less cost of disposal was estimated at
P1,900,000. On June 30,2022, the equipment was sold for P1,500,000.

1.) To remove the equipment from property, plant and equipment and
classify it as held for sale on January 1, 2022.

Equipment held for sale 3,650,000

Accumulated depreciation 1,350,000
Equipment 5,000,000
Illustration: Answer
2.) To measure the equipment held for sale at the lower of carrying
amount and fair value less cost of disposal on January 1, 2022.
Impairment loss 1,750,000
Equipment held for sale 1,750,000

3.) To record the sale of the equipment on June 30, 2022.

Cash 1,500,000
Loss on sale of equipment 400,000
Equipment held for sale 1,900,000

* Note that the equipment held for sale is no longer depreciated from
January to June 30, 2022.
Abandoned noncurrent asset
• Entity shall not classify as held for sale a noncurrent asset or disposal
group that is to be abandoned.

• This is because the carrying amount will be recovered principally through

continuing use or the noncurrent asset is to be used until the end of its
economic life.

• Entity shall not account for a non-current asset that has been temporarily
taken out of use as if it had been abandoned.

• Example: An entity ceases to sue a manufacturing plant because demand

for its product has declined.

• However, the plant is maintained in workable condition and it is

expected that it will be brought back into use if demand picks up. In this
case, the plant is not regarded as abandoned.
Change in classification
• Circumstances could arise leading to the noncurrent asset no longer
being classified as held for sale.

• For example, there is a decision not to sell the noncurrent asset or the
criteria for being classified as held for sale may no longer be met.

• In such case, the entity shall measure the noncurrent asset that ceases
to be classified as held for sale at the lower between:

a.) Carrying amount of the asset on the basis that the asset had not
been classified as held for sale.

b.) Recoverable amount at the date of the subsequent decision not

to sell.
Illustration: Problem
• An entity purchased equipment for P5,000,000 on January 1, 2019 with
a useful life of 10 years and no residual value.

• On December 31,2020, the entity classified the asset as held for sale.
The fair value less cost of disposal of the equipment on December 31,
2020 is P3,200,000.

• On December 31, 2021, the fair value less cost of disposal of the
equipment is P3,600,000.

• On December 31, 2021, the entity believed that the criteria for
classification as held for sale can no longer be met.

• Accordingly, the entity decided not to sell the asset but to continue to
use it.
Illustration: Answer
1.) To record the purchase of equipment on January 1, 2019:
Equipment 5,000,000
Cash 5,000,000

2.) To record the depreciation for 2019:

Depreciation (5,000,000/10) 500,000
Accumulated depreciation 500,000

3.) To record the depreciation for 2020:

Depreciation 500,000
Accumulated depreciation 500,000
Illustration: Answer
4.) To remove the asset from property, plant equipment and classify it as
held for sale on December 31, 2020:
Equipment held for sale 4,000,000
Accumulated depreciation 1,000,000
Equipment 5,000,000

5.) To measure the equipment held for sale at the lower of fair value less
cost of disposal and carrying amount on December 31, 2020:
Impairment loss 800,000
Equipment held for sale 800,000
Illustration: Answer
6.) To measure the equipment that ceases as held for sale at the lower of
carrying amount on the basis that the equipment not been classified as held
for sale and the recoverable amount on December 31, 2020:
Equipment held for sale 300,000
Gain on reclassification 300,000

7.) To reclassify the equipment as property, plant and equipment on December

31, 2021:
Equipment 3,500,000
Equipment held for sale 3,500,000

8.) To record the depreciation for 2022:

Depreciation 500,000
Accumulated depreciation 500,000
Presentation
• PFRS 5, paragraph 3, provides that assets classified as noncurrent in
accordance with PAS 1 shall not be reclassified as current assets until
they meet the criteria to be classified as held for sale.
• Simply stated, a noncurrent asset that is already classified as held for
sale shall be presented separately as current asset.

• The assets of the disposal group shall be described as noncurrent assets

classified as held for sale presented separately as a single amount under
the current assets.

• The liabilities of the disposal group shall be described as liabilities

directly associated with noncurrent assets classified as held for sale
presented separately as a single amount under current liabilities.