Ch.17 Non current assets held for sale and discontinued operations

Question 1

Classification IFRS 5.7

Answer 1

Per IFRS 5.7, in order to be considered held for sale (HFS), a non-current asset must meet the following conditions:
• The asset must be available for immediate sale in its present condition.
• The terms of the sale must be usual and customary.
• The sale must be highly probable. Per IFRS 5.8 for a sale to be highly probable:
o Management must be committed to a plan to sell the asset (or disposal group).
o An active program to locate a buyer and complete the plan must have been initiated.
o The asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.
o The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification; if the sale will take longer than one year and the events that cause the delay are beyond the entity’s control, this condition can be waived.
o Actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Question 2

Measurement

Answer 2

the asset is measured at the lower of its carrying value and its fair value less costs to sell.
Any loss on the classification to HFS is recognized in income.
HFS assets are depreciated up to the point of reclassification. Once classified as HFS, depreciation ceases.
If the fair value less costs to sell of the HFS asset subsequently increases, the asset can be written up to the extent of any previous impairment losses taken (as a result of either the HFS classification or prior impairment losses). A gain is recognized for this reversal.

Question 3

Financial statement presentation

Answer 3

Non-current assets classified as HFS are presented separately from other assets on the balance sheet. They are reported as part of the current assets on the statement of financial position.

Question 4

Discontinued Operations

Answer 4

A discontinued operation is a component of an entity that either has been disposed of or is classified as HFS, and meets one of the following criteria:
• It represents a separate major line of business or geographical area of operations.
• It is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.
• It is a subsidiary acquired exclusively with a view to resale.

Question 5

discontinued operation steps

Answer 5

1. Determine whether the component meets one of the three criteria above.
2. Determine whether the component’s assets (together) either:
   a. have already been sold
   b. meet the HFS criteria (the criteria are applied to the component’s asset group, not to each individual asset in the component)

Question 6

Measurement - discontinued

Answer 6

the assets of the component are measured at the lower of the carrying value and the fair value less costs to sell.
Any loss on the classification is recognized in income

Question 7

Financial statement presentation -discontinued

Answer 7

presented separately from other assets on the statement of financial position. If the non-current assets qualify as HFS, then they are presented as current assets. Additionally, the discontinued operation may have liabilities, which are also presented separately from other liabilities.
On the statement of comprehensive income, an entity shall disclose a single amount comprising the total of the following:
• the post-tax profit or loss on the discontinued operation
• the post-tax gain or loss related to the remeasurement or disposal of the discontinued operation

Question 8

ASPE Differences

Answer 8

• The criteria on HFS assets do not apply to assets held for distribution to owners under ASPE.
• after the asset is classified as HFS, the fair value less costs to sell subsequently increases, the reversal of any previous write-down is limited to the losses incurred since the asset was classified as HFS (that is, impairment losses while the asset was in use cannot be reversed)
• Non-current HFS assets are classified as non-current on the balance sheet if the assets are not sold prior to the completion of the financial statements. If the non-current assets are sold prior to the completion of the financial statements, then under ASPE, they are classified as current on the balance sheet..