Gripping IFRS Non-current assets held for sale and discontinued operations

9. Summary

IFRS 5

Non-current assets Discontinued

held for sale operations

Non-current assets held for sale

Identification

General If asset not expected Assets acquired with

to be sold within 1 yr intention to sell
Normal 6 criteria 3 scenarios and 2 criteria
related criteria

Measurement

Cost model Revaluation model Assets acquired with

intention to sell
Initially: Initially: Initially:

at cost at cost Lower of CA (cost) and

FV – costs to sell
Subsequently: Subsequently:

Before reclassification: Before reclassification:

Depreciate and impair Depreciate; revalue and
impair

When reclassifying: When reclassifying:

Remeasure on Remeasure on revaluation
cost model model

Adjust to lower of CA or Adjust to lower of CA or FV

FV – CtS – CtS

Stop depreciating Stop depreciating

Transfer to NCAHforS Transfer to NCAHforS

Remeasure to latest FV – Remeasure to latest FV –

CtS CtS
(reversals of IL limited (reversals of IL limited to
to accumulated IL’s) accumulated IL’s)

329 Chapter 9
Gripping IFRS Non-current assets held for sale and discontinued operations

Non-current assets held for sale

No longer held for sale

Transfer back to PPE Remeasure to lower of:

• CA (had asset never been classified
as NCAHforS); and
• RA
Resume depreciation

Discontinued operations

Identification Measurement Disclosure

A component that has Same as for non- Statement of

been disposed of or is current assets held comprehensive income:
classified as held for for sale Face:
sale and is: Total profit or loss from
• Separate major line discontinued operations
or area Notes or on the face:;
• Part of a single Analysis of total profit
disposal plan or Gain or loss on re-
• Is a subsidiary measurement
acquired to sell Gain or loss on disposal of
assets
Tax effects of above
Changes in estimates
Statement of cash flows:
(face or notes)
Operating activities
Investing activities
Financing activities
Other notes:
Components no longer held
for sale
Criteria met after the end
of the reporting period

330 Chapter 9
Continuing and
discontinued
interests

Topic list Syllabus reference

1 IFRS 5 Non-current assets held for sale and C2, D2
discontinued operations
2 Classification of assets held for sale C2, D2
3 Measurement of assets held for sale C2, D2
4 Presenting discontinued operations C2, D2

Introduction
Separate analysis of discontinued operations and of non-current assets held for
sale allows the user of the accounts to make more accurate assessments of a
company's prospects in the future, because it excludes these items.

385
 Study guide
Intellectual level
C2 Non-current assets
(b) Apply and discuss the treatment of non-current assets held for sale 3
D2 Continuing and discontinued interests
(a) Prepare group financial statements where activities have been classified as 3
discontinued or have been acquired or disposed in the period
(b) Apply and discuss the treatment of a subsidiary which has been acquired 3
exclusively with a view to subsequent disposal

Exam guide
IFRS 5 was tested in December 2007.

1 IFRS 5 Non-current assets held for sale and

discontinued operations 12/07, 6/10
Background
FAST FORWARD
IFRS 5 requires assets 'held for sale' to be presented separately in the statement of financial position.
The results of discontinued operations should be presented separately in the statement of profit or loss
and other comprehensive income.

IFRS 5 was the result of a short-term convergence project with the US Financial Accounting Standards
Board (FASB). It replaced IAS 35 Discontinuing operations.
IFRS 5 requires assets and groups of assets that are '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 profit or loss and other comprehensive income. This is required so that users of financial
statements will be better able to make projections about the financial position, profits and cash flows of
the entity.

Key term Disposal group: 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.
(In practice, a disposal group could be a subsidiary, a cash-generating unit or a single operation within an
entity.) (IFRS 5)

IFRS 5 does not apply to certain assets covered by other accounting standards:
(a) Deferred tax assets (IAS 12)
(b) Assets arising from employee benefits (IAS 19)
(c) Financial assets (IAS 39)
(d) Investment properties accounted for in accordance with the fair value model (IAS 40)
(e) Agricultural and biological assets that are measured at fair value less estimated point of sale costs
(IAS 41)
(f) Insurance contracts (IFRS 4)

386 15: Continuing and discontinued interests Part C Group financial statements
2 Classification of assets held for sale
A non-current asset (or disposal group) should be classified as held for sale if its carrying amount will be
recovered principally through a sale transaction rather than through continuing use. A number of
detailed criteria must be met:
(a) The asset must be available for immediate sale in its present condition.
(b) Its sale must be highly probable (ie, significantly more likely than not).
For the sale to be highly probable, the following must apply.
(a) Management must be committed to a plan to sell the asset.
(b) There must be an active programme to locate a buyer.
(c) The asset must be marketed for sale at a price that is reasonable in relation to its current fair
value.
(d) The sale should be expected to take place within one year from the date of classification.
(e) It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
An asset (or disposal group) can still be classified as held for sale, even if the sale has not actually taken
place within one year. However, the delay must have been caused by events or circumstances beyond the
entity's control and there must be sufficient evidence that the entity is still committed to sell the asset or
disposal group. Otherwise the entity must cease to classify the asset as held for sale.
If an entity acquires a disposal group (eg, a subsidiary) exclusively with a view to its subsequent disposal
it can classify the asset as held for sale only if the sale is expected to take place within one year and it is
highly probable that all the other criteria will be met within a short time (normally three months).
An asset that is to be abandoned should not be classified as held for sale. This is because its carrying
amount will be recovered principally through continuing use. However, a disposal group to be abandoned
may meet the definition of a discontinued operation and therefore separate disclosure may be required
(see below).

Question Held for sale?

On 1 December 20X3, a company became committed to a plan to sell a manufacturing facility and has
already found a potential buyer. The company does not intend to discontinue the operations currently
carried out in the facility. At 31 December 20X3 there is a backlog of uncompleted customer orders. The
subsidiary will not be able to transfer the facility to the buyer until after it ceases to operate the facility and
has eliminated the backlog of uncompleted customer orders. This is not expected to occur until spring
20X4.
Required
Can the manufacturing facility be classified as 'held for sale' at 31 December 20X3?

Answer
The facility will not be transferred until the backlog of orders is completed; this demonstrates that the
facility is not available for immediate sale in its present condition. The facility cannot be classified as 'held
for sale' at 31 December 20X3. It must be treated in the same way as other items of property, plant and
equipment: it should continue to be depreciated and should not be separately disclosed.

Part C Group financial statements 15: Continuing and discontinued interests 387
 3 Measurement of assets held for sale
Key terms Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Costs to sell: the incremental costs directly attributable to the disposal of an asset (or disposal group),
excluding finance costs and income tax expense.
Recoverable amount: the higher of an asset's fair value less costs to sell and its value in use.
Value in use: the present value of estimated future cash flows expected to arise from the continuing use
of an asset and from its disposal at the end of its useful life.

A non-current asset (or disposal group) that is held for sale should be measured at the lower of its
carrying amount and fair value less costs to sell. Fair value less costs to sell is equivalent to net
realisable value.
An impairment loss should be recognised where fair value less costs to sell is lower than carrying amount.
Note that this is an exception to the normal rule. IAS 36 Impairment of assets requires an entity to
recognise an impairment loss only where an asset's recoverable amount is lower than its carrying value.
Recoverable amount is defined as the higher of net realisable value and value in use. IAS 36 does not
apply to assets held for sale.
Non-current assets held for sale should not be depreciated, even if they are still being used by the entity.
A non-current asset (or disposal group) that is no longer classified as held for sale (for example,
because the sale has not taken place within one year) is measured at the lower of:
(a) Its carrying amount before it was classified as held for sale, adjusted for any depreciation that
would have been charged had the asset not been held for sale
(b) Its recoverable amount at the date of the decision not to sell

4 Presenting discontinued operations

Key terms Discontinued operation: a component of an entity that has either been disposed of, or is classified as held
for sale, and:
(a) Represents a separate major line of business or geographical area of operations
(b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical
area of operations, or
(c) Is a subsidiary acquired exclusively with a view to resale.
Component of an entity: operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity.

An entity should present and disclose information that enables users of the financial statements to
evaluate the financial effects of discontinued operations and disposals of non-current assets or disposal
groups.
An entity should disclose a single amount in the statement of profit or loss and other comprehensive
income comprising the total of:
(a) The post-tax profit or loss of discontinued operations and
(b) 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.
An entity should also disclose an analysis of the above single amount into:
(a) The revenue, expenses and pre-tax profit or loss of discontinued operations

388 15: Continuing and discontinued interests Part C Group financial statements
(b) The related income tax expense
(c) The gain or loss recognised on the measurement to fair value less costs to sell or on the disposal
of the assets or the discontinued operation
(d) The related income tax expense
This may be presented either in the statement of profit or loss and other comprehensive income or in the
notes. If it is presented in the statement of profit or loss and other comprehensive income it should be
presented in a section identified as relating to discontinued operations, ie separately from continuing
operations. This analysis is not required where the discontinued operation is a newly acquired subsidiary
that has been classified as held for sale.
An entity should disclose the net cash flows attributable to the operating, investing and financing activities
of discontinued operations. These disclosures may be presented either on the face of the statement of
cash flows or in the notes.
Gains and losses on the remeasurement of a disposal group that is not a discontinued operation but is
held for sale should be included in profit or loss from continuing operations.

4.1 Illustration
The following illustration is taken from the implementation guidance to IFRS 5. Profit for the year from
discontinued operations would be analysed in the notes.
XYZ GROUP
STATEMENT OF PROFIT OR LOSS AND OTEHR COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 20X2
20X2 20X1
Continuing operations $'000 $'000
Revenue X X
Cost of sales (X) (X)
Gross profit X X
Other income X X
Distribution costs (X) (X)
Administrative expenses (X) (X)
Other expenses (X) (X)
Finance costs (X) (X)
Share of profit of associates X X
Profit before tax X X
Income tax expense ( X) ( X)
Profit for the year from continuing operations X X
Discontinued operations
Profit for the year from discontinued operations X X
Profit for the year X X
Period attributable to:
Owners of the parent X X
Non-controlling interest X X
X X

An alternative to this presentation would be to analyse the profit from discontinued operations in a
separate column in the statement of profit or loss and other comprehensive income.

Question Treatment of closure

On 20 October 20X3 the directors of a parent company made a public announcement of plans to close a
steel works. The closure means that the group will no longer carry out this type of operation, which until
recently has represented about 10% of its total turnover. The works will be gradually shut down over a
period of several months, with complete closure expected in July 20X4. At 31 December output had been
significantly reduced and some redundancies had already taken place. The cash flows, revenues and

Part C Group financial statements 15: Continuing and discontinued interests 389
 expenses relating to the steel works can be clearly distinguished from those of the subsidiary's other
operations.
Required
How should the closure be treated in the financial statements for the year ended 31 December 20X3?

Answer
Because the steel works is being closed, rather than sold, it cannot be classified as 'held for sale'. In
addition, the steel works is not a discontinued operation. Although at 31 December 20X3 the group was
firmly committed to the closure, this has not yet taken place and therefore the steel works must be
included in continuing operations. Information about the planned closure could be disclosed in the notes
to the financial statements.

4.2 Presentation of a non-current asset or disposal group classified as

held for sale
Non-current assets and disposal groups classified as held for sale should be presented separately from
other assets in the statement of financial position. The liabilities of a disposal group should be presented
separately from other liabilities in the statement of financial position.
(a) Assets and liabilities held for sale should not be offset.
(b) The major classes of assets and liabilities held for sale should be separately disclosed either in
the statement of financial position or in the notes.

4.3 Additional disclosures

In the period in which a non-current asset (or disposal group) has been either classified as held for sale or
sold the following should be disclosed.
(a) A description of the non-current asset (or disposal group)
(b) A description of the facts and circumstances of the disposal
(c) Any gain or loss recognised when the item was classified as held for sale
(d) If applicable, the segment in which the non-current asset (or disposal group) is presented in
accordance with IFRS 8 Operating segments
Where an asset previously classified as held for sale is no longer held for sale, the entity should disclose
a description of the facts and circumstances leading to the decision and its effect on results.

390 15: Continuing and discontinued interests Part C Group financial statements
Chapter Roundup
IFRS 5 requires assets 'held for sale' to be presented separately in the statement of financial position.
The results of discontinued operations should be presented separately in the statement of profit or loss
and other comprehensive income.

Quick Quiz
1 For a non-current asset to be held for sale, a buyer must already have been found. True or false?
2 An asset held for sale should be measured at the lower of…………………….. and …………………..
(Fill in the blanks.)

Part C Group financial statements 15: Continuing and discontinued interests 391
 Answers to Quick Quiz
1 False. There must be an active programme to locate a buyer.
2 The lower of its carrying amount and fair value less costs to sell.

392 15: Continuing and discontinued interests Part C Group financial statements
 Testyourunderstanding 1 ;
{$?,q
9, ]f:lyl ry ZaXl, Michefle oou g$i r,rhi"ken-processin g machine
for $20,000. lt has a1 exqggledQousetut g1e 10 years ,nJ,
;

fl
.value. On 31 December 20X2,'after twii,ydars otusing theLser,
nif residuat

Michelle uo
Mrcnere co oecldes setl [le
decides to sell tlte paq\in$
machine Lnd ,^ii^^" i^
sra.i* actions
and starts to r^^.r^
locate a-
buyer. The machines are in dtoii supp$
the machine wilt be sord fairry "r-d;;il;;;;ln-riol,i,irrr,
orficrty.rtffi.current nrarket vatue ii sls,iioo-
and it will cost $500 to dismanilii the mffchine and make if ,urilrli"
thepurchaser. . ,ii.r ,.. - --'---io
.,.
At what vatue shsutd the machin. $J in Mictrele Go,s
=*Lred
statement of financiat position at r,!,pece-ri, -- - iiiii':
' .,,.:1.
.,iri
j,.,.,:-l i

.a .-
: iril

puBLisHtNG
" ..!
'r^pU[N
2)g

lorting financial performance

Test your understanding answerp

.:1
iJ ,

Current carrying amount = B/10 x $20,000

= $16,000
t'
''L'
Fair value less costs to sell = $15,000.- $500
= $14,500
jh"tld
The machine quarifies rc ror rdr"'on 31 December 20X2, so
should be stated at the rower of $16,000 and
$14,s00, nr*"ry rt
$14,500.

The impairment toss of $1,800 incurrerj in wriring

down the machine to
fair: value tess costs to sefl wirt be charged to
the"incom;;i;i;;;i. '"
The machine will no longer be depreciated.
Reporting financial performance

Testyourunderstanding 2,, \ 't}

u.
St. Valentine produced:alq:.1hd !.

sotd roses..However, hatf way through 'i,

the year ended 31 March ZOXOThe rose \-:*
business.was ctosed and the
assets sord ofr, incurrins rosseq on rhe
$76,000 and redundaniycosts or
dirp*;i;i;;;:.;;^r
assets of
tc*
'+

o-iiooo. The directors reorganised \

the continuing busines, it, corioi S'g'd,ooo.

Trading resulls may be summarised

as foilows: . \

Card$ Roses
$ooo $000
Turnover
650 320
Cost of sates
320 150
Adrninistration
12A 110
Distribu.tion
60 90
u

Totals
lnterest payable $000
Tax 17
31

March 20X6.

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ilt.. ;.
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 chapter 1r
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Test your understanding,2

/ : ' i;l' :i'"t!i
':l

":'g;l
''
lncome statement for St Valentind-,tor:th6 year ended 3{ March
20XG ..',,ii,f,, ''
' tx':l : "'
1 r+lilii
j't ' '1

" .,,,r.*,,'fi.
r iiil.",:iti ,, $000
Gontinuing operations: : , ':"':t-'
,f.,i,, 'j;-'";'
Revenue ' 1t;:aii,i;, ;" 6so

.Co"lofsates.,,.li',;,..:;, '' -i'''''i"' ir':;

Adminislration costs ' ii : ,r:i ::j'jl (120)

!.i '
I *i' ;i i ii.,.: r .F:
-':
Distribution costs (60)
i[,] ::i;1 1r i.:r
I

r .. i -i:,,..,idi
Reorganisation costs :' $i1, . ,-r: I
t:' C. "' (9S)

' ' i. :l'.'t ' 52

OL
:..i
,.. , ,.
r
Finance costs .' (17)
t

rProfit"before
rvrrt yErvts tax
ra^ . ;j,i-i
.i:l ',
.: i. .: .r1 JO
tncome taxes ,.; I , :

';'.r' .: .i .,.
',
. . ,'i .j.',.;. 'i;'it
Profit for period from.continuing
/l(
dpetiliJns
'-. i
4
Discontinuedoperdtions; . .,' .:
:. " I

.l. l
. :.,, ':: |
Loss for peraod from discontinued.operations
|'

', (:l4g)

;+
I Loss for: period from totaloperationsi . : ,
(13e)
I
 T
.,rl
I

Reporting fi;lancial perfoiniance '''jr,

^^- ,:. . i..
'r.'
ln the notes to the accounti disclose analysis of the discontinued

. .-. :- f. $000
Revenue . 320
(150)

Gross prolit .. .t.

Adminislratibncosts .,. (110)

Distribution,costs
.f
i ,: ' (e0),
I I
: Operar.ing toss .. I (30)
Loss on disposal (76)' '
Redundaricy costs (37) J
;: .

Overallloss (143) '

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