CHAPTER 20

NON-CURRENT ASSETS HELD FOR

SALE AND DISCONTINUED
OPERATIONS

20.1 INTRODUCTION
Non-current assets typically held for use within the
business rather than for sale
NRV generally of little interest to users
Logical that IFRS 5 deals with two issues that are
often related (i.e. non-current assets held for sale
and discontinued operations)

20.2 IFRS 5 NON-CURRENT ASSETS HELD FOR

SALE AND DISCONTINUED OPERATIONS
Objective
To improve the information about assets and disposal
groups that are about to be disposed of and
discontinued operations
It does this by specifying the:
Requirements for the classification, measurement
and presentation of non-current assets held for
sale (i.e. such assets should be presented
separately on the face of the SFP)
Rules for the presentation of discontinued
operations (i.e. results of discontinued operations
should be presented separately in the SPLOCI)

Scoped-out assets
Measurement provisions of IFRS 5 do not apply to:
Deferred tax assets (IAS 12 See Chapter 13)
Assets arising from employee benefits (IAS 19
See Chapter 17)
Financial assets (IFRS 9 See Chapter 25)
Investment properties measured using fair value
model (IAS 40 See Chapter 5)
Agricultural non-current assets measured at fair
value less costs (IAS 41 See Chapter 34)

20.3 NON-CURRENT ASSETS HELD FOR SALE

The term refers to an individual asset or group of
assets
An individual non-current asset is regarded as held
for sale if its carrying amount will be recovered
principally through a sale transaction rather than
through continuing use
A disposal group is a group of assets to be disposed of
together as a single transaction together with liabilities
directly associated with those assets that will be
transferred in the transaction
The group includes goodwill acquired in a business
combination if the group is a cash-generating unit
Financial reporting implications arise in terms of how the
asset / disposal group is presented and measured

Classification and measurement

Classification
Classify as held for sale if carrying amount will be
recovered principally through a sale transaction rather
than through continuing use
Asset or disposal group must be available for
immediate sale in its present condition and the sale
must be highly probable (i.e. management must be
committed to the disposal)
Period to complete sale may extend beyond 1 year
due to circumstances outside the entitys control
Measurement
Lower of the carrying amount and FVLCS
When the sale is expected to occur > 1 year, costs to sell
must be measured at their present value
Do not depreciate or amortise while classified as held for
sale

Measurement immediately prior to reclassification as held for sale

Immediately before the initial classification of the
asset as held for sale, the carrying amount of the
asset is measured in accordance with applicable
IFRS (e..g. IAS 16, IAS 40)
Any impairment loss is recognised in SPLOCI P/L
unless the asset had been measured at a revalued
amount under IAS 16 or IAS 38, in which case the
impairment is accounted for as a revaluation
decrease

Measurement upon re-classification as held for

sale
Measure at lower of:
(a) carrying value; and
(b) FVLCS
Any impairment arising upon re-classification as
held for sale as a result of (b) being less than (a) is
recognised in SPLOCI P/L
See Example 1

Example 1
A property is purchased for 500,000 on 1 January 2011. The
useful life of the property is 20 years (zero residual value). The
property is measured subsequently at depreciated historical cost.
On 30 June 2013, it is decided that the property is to be classified
as held for sale (classification criteria are met).
An impairment assessment on 30 June 2013 determines the
recoverable value (based on value in use) to be 400,000.
The fair value less costs to sell on 30 June 2013 is 390,000.
Requirement
What is the carrying value of the property immediately before reclassification as held for sale on 30 June 2013?
What are the required accounting entries in 2013 in respect of
the re-classification of the asset as held for sale?

Example 1 Solution
a)
Cost
Depreciation 2011
Depreciation 2012
Depreciation six months 2013
Carrying value at 30 June 2013 prior to
impairment assessment
Impairment charge 2013

500,00
0
(25,000
)
(25,000
)
(12,500
)
437,50
0
(37,500
)
400,00

Example 1 Solution
b)

Carrying value at date of re-classification as

held for sale

400,000

Fair value less costs to sell

390,000

Impairment charge 2013

10,000

Measurement after re-classification as held for sale

No depreciation or amortisation charges (even if asset is

still used)

At subsequent reporting dates, re-measure to FVLCS

Impairment losses are recognised in SPLOCI P/L

Gains are recognised for increases in FVLCS but not in
excess of cumulative impairment losses recognised in
accordance with IFRS 5 or previously in accordance
with IAS 36
See Examples 2 and 3

Connolly International Financial Accounting and Reporting 4th Edition

Example 2
At 30 June 2013, a decision is taken to classify property
as held for sale (criteria are met). At the time of
classification, the carrying value is 250,000 and the
FVLCS is 260,000.
Upon re-classification, there is no impairment and the
property is initially classified as held for sale at
250,000. There is no depreciation of the property
after the date of re-classification.
At the next reporting date, 31 December 2013, the
market has declined and the FVLCS is determined to be
240,000. An impairment loss of 10,000 is recognised
in SPLOCI P/L.
The property is subsequently sold for 270,000. A gain
on disposal of 30,000 is recognised in SPLOCI P/L.

Example 3
At 30 June 2013, a decision was taken to classify property as
held for sale (criteria are met). The property was originally
acquired for 400,000. Cumulative depreciation to 30 June
2013 amounted to 110,000. An impairment loss of 35,000
was also recognised at 30 June 2013 because VIU was
determined at that date to be 255,000.
Upon re-classification as held for sale, the FVLCS was
assessed at 250,000. An additional impairment charge
therefore arose under IFRS 5 and the carrying value of the
property was 250,000.
At the next reporting date, 31 December 2013, the FVLCS is
reassessed at 265,000. The full amount of the gain,
15,000, is recognised in SPLOCI P/L because it is less than
the cumulative impairment losses recognised to date
(40,000).

Example 3 (Contd)
If however, at 31 December 2013, the FVLCS was 300,000,
then the gain of 50,000 would exceed the cumulative
impairment losses (40,000).
In this circumstance, only 40,000 of the gain could be
recognised in SPLOCI P/L and the carrying value of the
property would be 290,000. If the property was
subsequently sold for 300,000, a gain on disposal of
10,000 would be recognised at that point.

Changes to a plan of sale

When the held for sale criteria are no longer met,
the asset should be removed from the held for sale
category
Re-classify and re-measure at lower of:
Carrying amount before the asset was classified
as held for sale, adjusted for depreciation,
amortisation, revaluations that would have been
recognised had the asset not been classified as
held for sale; and
Recoverable amount at the date of change to plan
See Example 4

Example 4
A property is purchased for 500,000 on 1 January 2011. The
useful life of the property is 20 years (zero residual value). The
property is measured subsequently at depreciated historical cost.
On 31 December 2012, it is decided that the property is to be
classified as held for sale (classification criteria are met).
An impairment assessment on 31 December 2012 determines the
recoverable value (based on VIU) to be 400,000.
The FVLCS on 31 December 2012 is 390,000.
At 31 December 2013, there is a change in plans and the property
no longer meets the criteria to be classified as held for sale.
There is no change in the useful life of the property at any point.
The recoverable value at 31 December 2013 is 385,000.
Requirement
Show how the property would be accounted for in 2012 and 2013.

Example 4 Solution
2012
Cost 1 January 2011
Depreciation 2011
Depreciation 2012
Carrying value prior to impairment

500,000
(25,000)
(25,000)
450,000

Impairment charge at 31 December 2012

(50,000)

Carrying value prior to re-classification as

held for
sale

400,000

Impairment charge after re-classification as

held for
sale

(10,000)

Carrying value at 31 December 2012

(classified as
held for sale

390,000

Example 4 Solution
2013
Carrying value prior to re-classification as
held for
sale at 31 December 2012
Depreciation charge for 2013 would have
been
Carrying value at 31 December 2013 would
have
been
Actual carrying value at 31 December 2013
Impairment charge upon re-classification as
noncurrent asset (held for use) at 31 December
2013

400,000
(22,222)
377,778
390,000
(12,222)

Non-current assets to be abandoned

Held for sale includes those to be abandoned /
scrapped
See Chapter 20, Examples 20.1 and 20.2

Example 20.1: Abandoned

In October 2012 an entity decides to abandon all of its
cotton mills (major line of business). All work stops
during 2013.

For 2012 the results and cash flows should be treated

as continuing operations but in 2013 the entity
discloses the information for discontinued operations
including a restatement of any comparative figures.

Example 20.2: Not abandoned

Entity ceases to use a manufacturing plant because
demand has declined. However, the plant is
maintained in workable condition and it is expected to
be brought back into use if demand picks up.
It is not, therefore, abandoned and the entity may not,
for example, stop charging depreciation or treat it as
held for sale

Classification of a non-current assets or disposal

group as held for sale
Asset is available for immediate sale in its present
condition
Sale is highly probable
Management committed to a plan to sell the asset
Programme to locate a buyer initiated
Asset actively marketed as a price that is
reasonable in relation to its fair value
Disposal plan should be completed within one
year from date of classification (subject to events
outside entitys control)
Significant change in plan or withdrawal unlikely

Example 20.3: Plan to sell time to vacate

An entity is committed to a plan to sell its HQ and has
initiated action to find a buyer.
Situation 1
The entity intends to transfer the building to a buyer after
it vacates the building. The time to vacate is normal. The
criterion is met at the plan commitment date.
Situation 2
The entity will continue to use the building until a new HQ
is built. The building will not be transferred until
construction is completed. The delay demonstrates that
the building is not available for immediate sale and thus
the criterion is not met, even if a firm purchase
commitment has already been entered into.

Example 20.4: Plan to sell backlog of customers

An entity is committed to a plan to sell a manufacturing facility and has
initiated action to locate a buyer, but there is a backlog of customer
orders.
Situation 1
The entity intends to sell the manufacturing facility with its operations
and any uncompleted orders will transfer to the buyer. The criterion will
be met at the plan commitment date.
Situation 2
The entity intends to sell the manufacturing facility but without its
operation and it does not intend to transfer it until it eliminates the
backlog of orders. The delay means that the facility is not available for
immediate sale and thus the criterion is not met until the operations
cease, even if a firm purchase commitment were obtained before
operations ceased.
Connolly International Financial Accounting and Reporting 4th Edition

Example 20.5: Plan to sell future work required

An entity acquires a property via foreclosure comprising land
and buildings that it intends to sell.
Situation 1
If the entity does not intend to sell until it completes
renovations, the delay means the property is not available
for immediate sale until the renovations are complete.
Situation 2
If, after renovations are competed and the property is
classified as held for sale, the entity becomes aware of
environmental damage, the property cannot be sold until
remediation takes place. The property is thus not available
for immediate sale and the criterion would not be met. It
would have to be reclassified.
See Chapter 20, Example 20.6

Example 20.7: Sale period beyond one year

(A)
Entity in the power-generation industry is committed to
plan to sell a disposal group that represents a
significant portion of its regulated operations. The sale
requires regulatory approval that could extend beyond
1 year. However, while it is highly probable that a
buyer will be found, actions to obtain approval from
the regulator cannot be initiated until a buyer is
located and firm purchase commitment obtained.
As the sale is highly probable, it may be classified as
held for sale even though it extends beyond one year.

Example 20.8: Sale period beyond one year (B)

An entity is committed to sell a manufacturing facility
but, after a firm purchase commitment is obtained, the
buyers inspection identifies environmental damage
that must be made good and this will extend beyond
one year. However, the entity has initiated appropriate
procedures to repair the environmental damage and
the sale remains highly probable.
Thus, it can be classified as held for sale.
See Chapter 20, Example 20.9

Presentation of disposal groups classified as held for sale

2012 2013

ASSETS
Non current assets
AAA X
X
BBB
X
X
CCC X
X
X
X

Current assets
DDD X
X
EEE
X
X
X
X
Non-current assets classified as held for sale
8,000
X
X
Total assets X
X
See Chapter 20, Example 20.10

20.4 DISCONTINUED OPERATIONS

A discontinued operation is a component of an entity
that has been disposed of, or is classified as held for
sale, and:
Represents a separate major line of business
or geographical area of operations;
Is part of a single co-ordinated plan to dispose
of a separate major line of business or
geographical area of operations; or
Is a subsidiary acquired exclusively with a view
to resale
A component of an entity is a CGU or group of CGUs

Presentation and disclosure

Present as a single figure in the SPLOCI:
Post-tax profit or loss of discontinued
operations; and either

Post-tax gain or loss recognised on

the measurement to fair value less
costs to sell of the assets held for
sale that constitute the discontinued
operation, or
Post-tax gain or loss on the disposal
of the assets that constituted the
discontinued operation

An analysis of the single figure is provided in the notes

See Figure 20.1:

m
Continuing Operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Other expenses
Finance costs
Share of profit of associates
Profit before tax
Income tax expense
Net profit for period for continuing operations
Discontinued Operations
Net profit for period for discontinued operations*
Net profit for period
Attributable to:
Equity holders of the parent
Non-controlling interest

x
(x)
x
x
(x)
(x)
(x)
(x)
x
x
(x)
x
x
x

x
x
x
*Required analysis would be given in notes. Alternatively, profit from
discontinued operations could be analysed in separate column on the face
of SPLOCI.

Summary: Assets held for sale

To be classified as held for sale:

Available for immediate sale in present condition

Sale highly probable
Transfer to be completed within one year
Where assets &
liabilities to be disposed
of in a single
transaction treat as a
disposal group

Carry at lower of carrying value & FVLCS

Do not depreciate
Present separately on face of SFP

Where an entity adopts the revaluation model for the measurement of assets, any asset classified as
held for sale should be revalued at fair value immediately prior to the reclassification. Upon
reclassification costs to sell are deducted and recognised as an impairment in the SPLOCI.

Summary: Discontinued operations

Discontinued is a component of an entity that has either been disposed of or is
classified as held for sale and:
Represents a major line of business or geographical area; or
Part of a single coordinated plan of disposal; or
Is a subsidiary acquired exclusively with a view to resale.

Disclose as a single amount on the face of the SPLOCI, the sum of:
Post-tax profit or loss of discontinued operation; and
Post-tax gain or loss recognised on the disposal of the asset.
Detailed disclosures of revenue, expenses, pre-tax profit or loss and related income taxes
also required either in notes or on face of SPLOCI plus separate disclosures relating to cash
flows from discontinued operations