Chapter 5 - Non Current Assets held for sale and discontinued operations

Question 1

Objective

Answer 1

The objective of IFRS 5 are:

1. Requirements for the classification, measurement and presentation of NCAs held for sale in particular requiring such assets should be presented separately on the face of the statement of financial position.
2. Updated rules for the presentation of discounted operations, in particular requiring the results of discontinued operations should be presented separately in the statement of profit or loss.

Question 2

Classification as held for sale

Answer 2

A NCA should be held for sale if it’s carrying amount will be recovered principally through a sale transaction rather than through continuing use.

The following must apply,

1. The asset must be available for immediate sale in its present condition.
2. The sale must be highly probable.
   - management committed to a plan to sell the asset.
   - there is an active programme to locate a buyer.
   - the asset is being actively marketed at a reasonable price.
3. The sale is expected to be completed within 12 months.
4. Unlikely the plan will be significantly changed or withdrawn.

Question 3

Measurement of NCAs held for sale.

Answer 3

Non current assets that qualify as held for sale should be measured at lower of

1. Their carrying amount.
2. Fair value less costs to sell.

Held for sale NCAs should be:

1. Presented separately on the face of the statement of financial position.
2. Not depreciated.

Question 4

Discontinued operations

Answer 4

A component of an entity that has either been disposed of or is classified as held for sale.

1. Represents a separate major line of business or geographical area of operations.
2. Part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations.
3. Is a subsidiary acquired exclusively with a view to resale.

An entity must disclose a single amount on the face of the statement of profit or loss and an analysis presented.

The analysis must disclose:

1. The revenue, expenses and pre tax profit or loss of discontinued operations.
2. The related income tax expense.
3. The gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets.