IFRS 5 | Non-current Assets Held for Sale and Discontinued Operations

1

Objective

The objective is to specify the accounting for assets held for sale and the presentation and disclosure of discontinued operations. It requires assets held for sale to be measured at the lower of carrying amount and fair value less costs to sell, depreciation to cease, and separate presentation in the financial statements.

2

Scope

The classification and presentation requirements apply to all recognised non-current assets and disposal groups. The measurement requirements apply to all recognised non-current assets and disposal groups, except for those listed in paragraph 5.

3

Current vs Non-Current

Assets classified as non-current under IFRS 18 (or IAS 1) shall not be reclassified as current assets until they meet the criteria to be classified as held for sale under this IFRS. Assets acquired with a view to resale are not current unless they meet these criteria.

4

Disposal Groups

A disposal group is a group of assets (and associated liabilities) to be disposed of together. Measurement requirements apply to the group as a whole, meaning the group is measured at the lower of its carrying amount and fair value less costs to sell.

5

Measurement Exclusions

The measurement provisions of IFRS 5 do not apply to the following assets (covered by other standards): deferred tax assets (IAS 12), employee benefit assets (IAS 19), financial assets (IFRS 9), investment property under the fair value model (IAS 40), biological assets at fair value less costs to sell (IAS 41), and insurance contracts (IFRS 17).

5A

Distribution to Owners

The requirements of this IFRS also apply to non-current assets (or disposal groups) classified as held for distribution to owners.

5B

Disclosure Scope

Disclosures in other IFRSs do not apply to assets held for sale or discontinued operations unless those IFRSs require specific disclosures for them or relate to measurement of assets excluded from IFRS 5 measurement requirements.

6

Classification Principle

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

7

Conditions for Sale

The asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, and its sale must be highly probable.

8

Highly Probable

For the sale to be highly probable, management must be committed to a plan to sell, an active programme to locate a buyer must be initiated, the asset must be actively marketed at a reasonable price, and the sale should be expected to qualify for recognition within one year.

8A

Loss of Control

An entity committed to a sale plan involving loss of control of a subsidiary classifies all assets and liabilities of that subsidiary as held for sale when criteria are met, regardless of whether a non-controlling interest is retained.

9

Extension of Period

Events beyond the entity's control may extend the period to complete the sale beyond one year. This does not preclude classification as held for sale if the entity remains committed to the plan.

10

Exchanges

Sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance.

11

Acquisition for Resale

When an asset (or disposal group) is acquired exclusively with a view to subsequent disposal, it is classified as held for sale at the acquisition date only if the one-year requirement is met and it is highly probable that other criteria will be met shortly (usually within three months).

12

Timing of Criteria

If criteria are met after the reporting period but before authorisation of statements, the asset is not classified as held for sale in those statements, but disclosures are required.

12A

Held for Distribution

An asset is classified as held for distribution to owners when the entity is committed to distribute it, the asset is available for immediate distribution, and the distribution is highly probable (expected within one year).

13

Abandoned Assets

Assets to be abandoned are not classified as held for sale because their carrying amount will be recovered principally through continuing use. However, if a disposal group to be abandoned meets discontinued operation criteria, results are presented as such at the date it ceases to be used.

14

Idle Assets

An entity shall not account for a non-current asset that has been temporarily taken out of use as if it had been abandoned.

15

Measurement

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.

15A

Distribution Measurement

Assets held for distribution to owners are measured at the lower of carrying amount and fair value less costs to distribute.

16

Initial Measurement

If a newly acquired asset meets held for sale criteria, it is measured on initial recognition at the lower of its carrying amount had it not been so classified (e.g., cost) and fair value less costs to sell. Therefore, items acquired in a business combination are measured at fair value less costs to sell.

17

Present Value of Costs

If the sale is expected to occur beyond one year, costs to sell are measured at their present value. Increases due to the passage of time are presented in profit or loss as a financing cost.

18

Pre-Classification

Immediately before initial classification as held for sale, the carrying amounts of the asset (or all assets/liabilities in a group) are measured in accordance with applicable IFRSs.

19

Subsequent Remeasurement

On subsequent remeasurement of a disposal group, assets/liabilities outside the measurement scope of IFRS 5 are remeasured in accordance with applicable IFRSs before the fair value less costs to sell of the group is remeasured.

20

Impairment Loss

An entity recognises an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell.

21

Gain on Increase

An entity recognises a gain for any subsequent increase in fair value less costs to sell, but not in excess of the cumulative impairment loss that has been recognised under IFRS 5 or IAS 36.

23

Allocation of Loss

Impairment losses (or subsequent gains) for a disposal group reduce (or increase) the carrying amount of non-current assets within the scope of IFRS 5 measurement requirements in the group.

24

Unrecognised Gains

A gain or loss not previously recognised by the date of sale is recognised at the date of derecognition.

25

No Depreciation

An entity shall not depreciate (or amortise) a non-current asset while it is classified as held for sale or is part of a disposal group classified as held for sale. Interest and other expenses on liabilities continue to be recognised.

26

Changes to Plan

If an asset (or disposal group) no longer meets the criteria for held for sale or distribution, the entity ceases to classify it as such.

26A

Reclassification

If an asset is reclassified directly from held for sale to held for distribution (or vice versa), it is considered a continuation of the original plan. The entity applies the requirements applicable to the new method of disposal and does not change the date of classification.

27

Measurement on Change

An asset that ceases to be classified as held for sale/distribution is measured at the lower of: (a) its carrying amount before classification, adjusted for depreciation/revaluations that would have been recognised had it not been classified; and (b) its recoverable amount at the date of the decision not to sell/distribute.

28

Adjustment Recognition

The adjustment to the carrying amount is included in profit or loss from continuing operations in the period the criteria are no longer met. Financial statements for periods since classification are amended if the asset is a subsidiary, joint operation, joint venture, or associate.

30

Presentation Objective

Entities must present and disclose information to enable users to evaluate the financial effects of discontinued operations and disposals of non-current assets.

31

Component Definition

A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting, from the rest of the entity (e.g., a cash-generating unit).

32

Discontinued Operation

A discontinued operation is a component that has been disposed of or is held for sale and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single co-ordinated plan to dispose of such a line or area; or (c) is a subsidiary acquired exclusively with a view to resale.

33

Income Statement

An entity discloses a single amount in the statement of comprehensive income comprising the total of: (i) post-tax profit/loss of discontinued operations; and (ii) post-tax gain/loss on measurement to fair value less costs to sell or on disposal.

33A

Presentation Location

The analysis of the single amount into revenue, expenses, and pre-tax profit may be presented in the notes or the statement of comprehensive income. If in the statement, it is classified separately from continuing operations.

34

Cash Flows

Net cash flows attributable to operating, investing, and financing activities of discontinued operations are disclosed in the notes or statement of cash flows.

36

Prior Periods

Disclosures for prior periods are re-presented so that they relate to all operations discontinued by the end of the reporting period.

37

Continuing Operations

Any gain or loss on remeasurement of a held-for-sale asset that is not a discontinued operation is included in profit or loss from continuing operations.

38

Balance Sheet

Assets classified as held for sale and assets of a disposal group are presented separately from other assets. Liabilities of a disposal group are presented separately from other liabilities. They are not offset.

40

No Reclassification

Prior period amounts in the statement of financial position are not reclassified to reflect the classification in the latest period.

41

Additional Disclosures

Disclosures include a description of the asset/disposal group, facts and circumstances of the sale/disposal, and the gain/loss recognised.

43

Transitional Provisions

The IFRS is applied prospectively to assets meeting criteria after the effective date. It may be applied to assets meeting criteria earlier if valuations were obtained at that time.

44

Effective Date

The Standard applies for annual periods beginning on or after 1 January 2005.

Appendix A

Definitions

• Cash-generating unit: The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
• Component of an entity: Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
• Costs to sell: The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.
• Current asset: An asset that is expected to be realised in the normal operating cycle, held primarily for trading, expected to be realised within 12 months, or is cash/cash equivalent.
• Discontinued operation: A component of an entity that either has been disposed of or is classified as held for sale and: (a) represents a separate major line of business or geographical area of operations, (b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or (c) is a subsidiary acquired exclusively with a view to resale.
• Disposal group: A group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
• Fair value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
• Firm purchase commitment: An agreement with an unrelated party, binding on both parties and usually legally enforceable, that specifies all significant terms and includes a disincentive for non-performance sufficiently large to make performance highly probable.
• Highly probable: Significantly more likely than probable.
• Non-current asset: An asset that does not meet the definition of a current asset.
• Probable: More likely than not.
• Recoverable amount: The higher of an asset's fair value less costs of disposal and its value in use.
• Value in use: The present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.