CHAPTER SIX

Non-current Assets Held For Sale And

Discontinued Operations

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• The objective of this IFRS is to specify the accounting for assets held for
sale, and the presentation and disclosure of discontinued operations. In
particular, the IFRS
• requires:
• (a) assets that meet the criteria to be classified as held for sale to be
measured at the lower of carrying amount and fair value less costs to sell,
and depreciation on such assets to cease; and
• (b) assets that meet the criteria to be classified as held for sale to be
• presented separately in the statement of financial position and the results
of discontinued operations to be presented separately in the statement of
comprehensive income
• Discontinuing a business operation or deciding to sell a major asset are important
commercial events.
• The impact of these events and the way in which they are reported is therefore of
much interest to investors, analysts, regulators and other financial statement
users.
• IFRS 5 can have a significant effect on a company's profit or loss, the carrying
values of its assets and on the presentation of results.

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 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.
 specifies that assets or disposal groups that are classified as held for sale are carried
at the lower of carrying amount and fair value less costs to sell

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 Held-for-sale classification
• The trigger for a held for sale classification is often a buyer s firm purchase
commitment
• 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 assets are on the market at a price that is reasonable in relation to their
estimated current fair values;
The sale is expected to be completed within 1 year from the date of
classification(with exceptions);
Significant changes to or a withdrawal from the selling 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 is required and any sale requires 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

• EEU 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 EEU can document a firm purchase commitment from a third party.
EEU believes it is highly probable that it will obtain such a commitment within
one year. Since government approval may cause a delay beyond one-year, can’t
EEU continue to classify the PPE as held for sale?
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

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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 held for sale are not 9
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 recognized in accordance with IFRS 5.

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Test your understanding
-Measuring non-current assets held for sale
Example 1: 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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 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?
 Example 3
At 30 June 2014, a decision was taken to classify property as held for sale (criteria
are met). The property was originally acquired for Br. 400,000. Cumulative
depreciation to 30 June 2014 amounted to Br.110,000. Recoverable amount (VIU)
was determined at that date to be Br. 255,000.
Upon re-classification as held for sale(June 30,2014), 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 re-classification
as held for sale on 30 June 2014?
b)Impairment loss just before reclassification
c)What are the required accounting entries in 2014 in respect of the re-
classification of the asset as held for sale?
d)Impairment loss under IFRS 5
e)How much Gain should be reported at 30 June 2015
Changes to a plan of sale
• When the ‘held for sale’ criteria are no longer met, the asset should be
removed from the held for sale category
• Re-classify and re-measure at lower of:
 Carrying amount before the asset was classified as held for sale,
adjusted for depreciation, amortisation, revaluations that would
have been recognised had the asset not been classified as held for
sale; and
 Recoverable amount at the date of change to plan
 Example
A property is purchased for €500,000 on 1 January 2011. The useful life of the
property is 20 years (zero residual value). The property is measured subsequently at
depreciated historical cost.
On 31 December 2012, it is decided that the property is to be classified as held for
sale (classification criteria are met).
An impairment assessment on 31 December 2012 determines the recoverable value
(based on VIU) to be €400,000.
The FVLCS on 31 December 2012 is €390,000.
At 31 December 2013, there is a change in plans and the property no longer meets
the criteria to be classified as held for sale.
There is no change in the useful life of the property at any point. The recoverable
value at 31 December 2013 is €385,000.
Requirement
Show how the property would be accounted for in 2012 and 2013.
Example 4 – Solution

2012 €
Cost 1 January 2011 500,000
Depreciation 2011 (25,000)
Depreciation 2012 (25,000)
Carrying value prior to impairment 450,000
Impairment charge at 31 December 2012 (50,000)
Carrying value prior to re-classification as held for
sale 400,000

Impairment charge after re-classification as held for

sale (10,000)

Carrying value at 31 December 2012 (classified as

held for sale 390,000
Example 4 – Solution

2013 €
Carrying value prior to re-classification as held for
400,000
sale at 31 December 2012
Depreciation charge for 2013 would have been (22,222)
Carrying value at 31 December 2013 would have
377,778
been
Actual carrying value at 31 December 2013 390,000
Impairment charge upon re-classification as non-
current asset (held for use) at 31 December 2013 (12,222)
 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.

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Presentation

● In the statement of financial position. 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
LIB 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, LIB plans to stop
operating and close the branch by the end of the year.
• LIB 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
• LIB designates one of its factory(subsidary) as held for sale. At this point, LIB
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?

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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 (IFRS5.33):
1. In the statement of comprehensive income: a single amount comprising the
total of:
• The post-tax profit or loss of discontinued operations, and
• 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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Disclosures

• IFRS 5 requires the following disclosures about assets (or 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 non-current asset (or
disposal group) is presented in accordance with IFRS 8 Operating
Segments

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END OF CHAPTER SIX

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