IFRS 5

Question 1

What is the criteria needed for an asset to be reclassified as a non-current asset held for sale

Answer 1

• It is available for sale immediately, in its present condition
• The sale is highly probable
• Management are committed to a plan to sell the asset
• The asset is being marketed at a reasonable price
• The sale is expected to complete within 1 year of classification
• It is unlikely that the plan will change significantly or be withdrawn

Question 2

What are the implications to the financial statements

Answer 2

• Measurement

Non current assets held for sale are not depreciated. Prior to classification as held for sale, the asset will be treated in line with the applicable accounting standard e.g. PPE should be depreciated as normal until date of classification as held for sale

If the value of the asset held for sale is less than the carrying amount on the statement of financial position it should be written down and the impairment charged against profit.

• Classification

Held for sale assets will be classified as a separate category of current asset separately disclosed below the normal current asset section.

Question 3

What is the revaluation model

Answer 3

Any assets valued under the revaluation model that meet the criteria of an asset held for sale should first be revalued as normal then separately written down to fair value less costs to sell.

For example, PPE measured using the revaluation model with a carrying amount of $10,000 met the criteria of an asset held for sale when the fair value of the asset was $12,000 and the costs to sell were $3,000.

The asset would first be revalued by $2,000 as per IAS 16 by debiting the asset cost account and crediting the revaluation reserve.

DR PPE $2,000
CR Revaluation reserve $2,000

Remove the PPE and show at the lower of carrying amount or FV less any cost to sell. The carrying amount is now $12,000, the FV less cost to sell is $9,000 ($12,000 - $3,000). The held for sale asset is recorded at $9,000

DR Held for sale asset $9,000
DR P&L $3,000
CR PPE $12,000

This results in the costs to sell being recognised as an immediate impairment cost to the SPL

The revaluation reserve will be transferred upon disposal to retained earning.