CH. 14: Non-current assets held for sale and discontinued operations

Question 1

How do you classify non-current assets or disposal groups as held for sale?

Answer 1

An entity shall classify a non-current asset (or disposal group) as held for sale if its C.A

“will be recovered principally through a sole transaction rather than through continuing use”

To be classified as ‘held for sAle’, the following criteria must be met:

• (A) The asset (or disposal group) must be available for immediate sale in its present condition,
• (B) The sale must be highly probable. For this to be the case:
  
  • Price at which the asset (or disposal group) is actively marketed for sale must be reasonable in relation to its current fair value;
  • Unlikely significant changes will be made to the plan or the plan withdrawn (indicated by actions required to complete the plan);
  • Management must be committed to a plan to sell;
  • Active programme to locate a buyer and complete the plan
  • Sale expected to qualify as completed within one year from the date of classification as held for sale (subject to limited specified exceptions).

Question 2

How is NCA classified held for sale, Measured and presented In the accounts?

Answer 2

Step 1 - Immediately before initial classification as held for sale, the asset (or disposal group) is measured in accordance with the applicable IFRS.

Step 2 - It is written down to fair value less costs to sell and impairment is charged to P.L

Step 3 - Non-current assets/disposal groups classified as held for sale ore not
depreciated/amortised.

Step 4 - Any subsequent changes in fair value less costs to sell are recognised as a further impairment loss (or reversal of an impairment loss).

Step 5 - Presented:

• As single amounts (of assets and liabilities);
• on the face of the SFP
• Separately from other assets and liabilities; and
• Normally as current assets and liabilities (not offset).

Question 3

Define:

Discontinued operations:

Component of an entity:

Answer 3

Discontinued operation:

A component of an entity that either has 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: A part that has operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

Question 4

How is a Discontinued Operation Presented?

Answer 4

The general requirement is that an entity shall present and disclose information that enables users of financial statements to evaluate the financial effects of discontinued operations and disposals of noncurrent assets and disposal groups

The following presentation and disclosure requirements apply

On the face of the SPLOCI

• 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 remeasurement to fair value less costs to sell.
  • (3) The post-tax gain or loss recognised on the disposal of assets/disposal groups comprising the discontinued operation.

On the face of the financial statements or in the notes:

• (i) The revenue, expenses, and pre-tax profit or loss of discontinued operations, and the related income tax expense;
• (ii) The gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of assets/disposal groups comprising the discontinued operation, and the related income tax expense; and
• (iii) The net cash flows attributable to the operating, investing, and financing activities of discontinued operations.

Question 5

Explain the main requirement of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations?

Define Disposal group

Answer 5

IFRS 5 requires: a non-current asset or disposal group should be classified as: ‘held for sale”

• if its carrying amount of the asset will be recovered via a sale rather than through continuing use.

Disposal group: is a group of assets (and possibly liabilities) that the entity intends to dispose of in a single transaction.

Question 6

How do you classify a non-current asset held for sale?

and

How are abandoned assets classified?

Answer 6

• *Classification as “held for sale”**
• *IFRS 5 requires the following conditions to be met before an asset or disposal group can be classified as ‘held for sale:**
• Available for immediate sale in its current condition.
• The sale is highly probable.
• Management is committed to a plan to sell the item.
• An active programme to locate a buyer has been initiated.
• The item is being actively marketed at a reasonable price in relation to its current fair value.
• The sale is expected to be completed within one year from the date of classification.
• It is unlikely that the plan will change significantly or be withdrawn.

Assets that are to be abandoned or wound down gradually cannot be classified as held for sale because their carrying amounts will not be recovered principally through a sale transaction. Written down or impaired for its remaining useful life.

Question 7

How assets for held for disposal be measured?

Answer 7

Items classified as held for sale should be measured at the l**ower of:

• • Carrying amount
• - Fair value less costs to sell.
  
  • ^{Where fair value less costs to sell is lower than carrying amount, the item is impairmerd.}

- Non-Current Asset is measured using a revaluation model is Held for sale,

• 1^st Revalued to fair value immediately before it is classified as held for sale.
• Then revalued again at the lower of the:
  • Carrying amount
  • Fair value less costs to sell.
    
    • _{^{The difference is the selling costs and these should be charged in P/L profits in the period.}}

- When a disposal group is being written down to F.V less selling costs,

• Impairment loss reduces the carrying amount of assets in the order prescribed by IAS 36. ^{_{i.e goodwill first, then any identified impairments then split equally}}
• A gain can be recognised for any subsequent increase in fair value less costs to sell,
  • But not in excess of the cumulative impairment loss that has already been recognised, either when the assets were written down to fair value less costs to sell or previously under IAS 36.

​An asset held for sale is not depreciated, even if it is still being used by the entity.

Question 8

How are assets Held for sale Presented in the financial statements?

Answer 8

Presentation in the statement of financial position

IFRS 5 states assets classified as held for sale:

• - Should be presented separately from other assets in the SFP
  
  • ^{<strong>Note - The liabilities of a disposal group should be classified separately</strong>}
• The major classes of assets and liabilities held for sale must be separately disclosed either on the face of the SFP or in the notes.

Where an asset or disposal group is classified as held for sale after the
reporting date, but before the issue of the financial statements,

• Details should be disclosed in the notes (this is a non-adjusting event after the reporting period).

Question 9

How are assets held for sale with a change of plan treated?

Answer 9

Changes to a plan of sale - If a sale does not take place within one year

IFRS 5 says that an asset (or disposal group) can still be classified as held for sale if:

• The delay has been caused by events or circumstances beyond the entity’s control​
• There is sufficient evidence that the entity is still committed to the sale.

If Criteria for ‘held for sale’ are no longer met: - then the entity must cease to classify the assets or disposal group as held for sale.

The assets or disposal group must be remeasured at the LOWER of:

• Carrying amount before it was classified as held for sale.
  ^{<strong>Must be adjusted for any:</strong>}
  
  • ^{<strong>depreciation, </strong>}
  • ^{<strong>amortisation</strong>}
  • ^revaluations
    T^​hat would have been recognised had it not been classified as held for sale

OR

• Recoverable amount at the date of the subsequent decision not to sell.

Note - Any adjustment required is recognised in profit or loss as a gain or loss from
continuing operations.

Question 10

What Disclosures are required for IFRS 5?

Answer 10

Disclosures
In the period in which a non-current asset or disposal group has been classified as held for sale, or sold,

IFRS 5 says that the entity must disclose:

• Description of the non-current asset (or disposal group)
• Description of the facts and circumstances of the sale or expected sale
• Any impairment losses or reversals recognised.

Question 11

Discuss and apply the treatment of a subsidiary that has been acquired exclusively with a view to subsequent disposal?

Answer 11

• *A subsidiary acquired exclusively with a view to resale is not exempt from
  consolidation. **

However, if it meets the ‘held for sale’ criteria in IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations:

• it is presented in the financial statements as a disposal group classified as held for sale. This is achieved by amalgamating all its assets into one line item and all its liabilities into another
• Measured, both on the
  
  • ​Acquisition (Initial Recognition)
  • Subsequent reporting dates
• at F.V less costs to sell.

The ‘held for sale’ criteria in IFRS 5 include the requirements that:

• the subsidiary is available for immediate sale
• the sale is highly probable
• it is likely to be disposed of within one year of the date of its acquisition.

A newly acquired subsidiary that meets these held for sale criteria automatically meets the criteria for being presented as a discontinued operation.