IFRS 5 - Assets & Disposal Groups Held For Sale Flashcards
What is the criteria before a non-current asset can be classified as held for sale?
> The asset should be available for immediate sale & the sale should be highly probable
There should be an expectation that the asset will be sold within 1 year from the date of classification
What happens when a non-current asset is disposed of or abandoned?
The non-current asset should be de-recognised when it is disposed of or abandoned
What happens to depreciation once an asset has been classified as held for sale?
The asset should no longer be depreciated
What happens with the treatment of an abandoned asset?
An asset to be abandoned should NOT be treated as held for sale & should still be depreciated
How is an asset held for sale measured?
An asset held for sale is measured at the lower of carrying amount & fair value less cost to sell, with any write down being recognised as an impairment loss
- The effect for an asset measured under the cost model is that any loss is recognised immediately, but any gain is deferred until actual disposal
- An asset under the revaluation model is remeasured at fair value immediately before classification, then remeasured at the lower of the carrying amount & fair value less cost to sell.
The effect is that costs to sell are recognised as a loss on reclassification
What happens if a further gain or loss is made on disposal of the asset?
On final disposal any further gain or loss (i.e carrying amount less disposal proceeds) should be recognised as a gain or loss
What is the basic context of IFRS 5?
Where an entity does not intend to use a non-current asset as part of it on-going business but instead intends to sell it, it is not appropriate to classify the asset as PPE as it will not be used to generate economic benefits for the entity in the future.
In these circumstances IFRS 5 requires the asset to be classified as held for sale
What is a disposal group?
A group of assets to be disposed of together as a group in a single transaction
What are the rules with respect to non-current assets acquired for re-sale?
In circumstances where a non-current asset or disposal group is acquired EXCLUSIVELY WITH THE VIEW TO ITS SUBSEQUENT DISPOSAL the entity should classify the asset or disposal group as held for sale at the date of acquisition where -
1) The condition that it is to be sold within one year of the acquisition date
2) All other conditions for recognition as held for sale are met within a short period of it acquisition (normally 3 months)
What happens where an asset held for sale is not sold within the expected time of 1 year ?
If disposal is not achieved within this time limit the asset should be re-classified as PPE, measured at the date of reclassification at the lower of its - :
* Recoverable amount (determined at the date the decision not to sell is made)
* Carrying amount at which it would have been recognised if it had never been classified as held for sale
ANY ADJUSTMENTS FOR DEPRECIATION ETC WOULD BE RECOGNISED IN PROFIT & LOSS
In what circumstances can the classification of held for sale extend beyond 1 year?
The classification can be extended beyond the time limit if : -
> The delay is caused by events or circumstances beyond the entities control
> There is sufficient evidence that the entity is still committed to the sale
What are the disclosures required for IFRS 5?
WHERE THERE IS MORE THAN ONE ASSET HELD FOR SALE (I.E A CLASS OF ASSETS)
> The major classes of assets classified as held for sale shall be separately disclosed in EITHER the statement of financial position OR in the notes
WHERE THERE IS ONE ASSET
> The asset should be listed under the title of ‘non-current asset held for sale’ in the Statement of Financial Position
- In both cases a note is required to disclose the following : -
1) A description of the non-current asset
2) A description of the facts & circumstances of the sale
3) The gain or loss recognised in profit & loss or the statement of comprehensive income
4) If applicable the segment in which the non-current asset is presented in accordance with IFRS 5
Why are there far more judgements required with IFRS 5 than with any other IFRS?
IFRS 5 deals with managements intentions, rather than past transactions or events so the number of judgements involved is perhaps greater than with any other IFRS
What judgements are required with IFRS 5?
- The asset should be available for immediate sale in its present condition - It maybe clear on an asset where substantial work is required that it is not available for sale but what about one that needs a general tidy up.
- Management should be committed to the plan to sell the asset - Is a minute of a board meeting sufficient to record this?
- There should be an active programme to locate a buyer - legitamite differences of view about what constitutes an active programme.
- The sale should be expected to take place within 1 year - Evidence of expectations is notoriously difficult to identify.
What is the definition of a discontinued operation held for sale?
A discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale.
