IFRS 5

IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations was released on March 2004 to replace IAS 35 – Discontinuing Operations.

IFRS – 5 outlines how to account for non-current assets held for sale and also sets the presentation and disclosure requirements for discontinued operations.

Assets held for sale

There are certain conditions which must be met for an asset to be classified as held for sale:

• management commitment,
• it is available for immediate sale,
• management planned to locate a buyer,
• management planned to sell the asset within a year of classification as held for sale, and
• the asset is being actively marketed for sale.

The classification, presentation and measurement requirements of IFRS 5 also apply to a non-current asset (or disposal group) that is classified as held for distribution to owners.

If plan changes of sale Where an asset or disposal group has been classified as held for sale, but the held-for-sale criteria are no longer met, the asset/disposal group should be removed from the held for sale category.

 Measurement

The following principles apply:

1. At the time of classification as held for sale 

• Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measured in accordance with applicable IFRS’s.

2. After classification as held for sale

• Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell (fair value less costs to distribute in the case of assets classified as held for distribution to owners).

3. After classification calculate any impairment loss

• It is based on the difference between the adjusted carrying amounts of the asset/disposal group and fair value less costs to sell. Any impairment loss that arises by using the measurement principles in IFRS 5 must be recognized in profit or loss.
• In case the asset belongs to revalued amount under IAS 16 or IAS 38, then the impairment loss must be treated as a revaluation decrease.

4. Subsequent increases in fair value

• A gain for any subsequent increase in fair value less costs to sell of an asset can be recognized in the profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognized in accordance with IFRS 5 or previously in accordance with IAS 36.

5. No depreciation

• Non-current assets or disposal groups that are classified as held for sale are not depreciated even if they are still in use by the entity.

The measurement provisions of this IFRS do not apply to the following:

• deferred tax assets under IAS 12,
• assets arising from employee benefits as per IAS 19,
• financial assets – IFRS 9,
• Investment property under IAS 40 that are accounted for in accordance with the fair value model,
• non-current assets as per IAS 41 that are measured at fair value less costs to sell,
• groups of contracts as per IFRS 17.

Presentation

• Assets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separately on the face of the statement of financial position.
• Separate presentation in the statement of comprehensive income of the results of discontinued operations required.

Abandoned assets

• Abandoned assets should not be classified as ‘held for sale’.

Key provisions of IFRS 5 relating to discontinued operations are:

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and:

• represents either a separate major line of business or a geographical area of operations,
• is part of a single coordinated 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.

Cash flow information

• The net cash flows attributable to the operating, investing, and financing activities of a discontinued operation is separately presented on the face of the cash flow statement or disclosed in the notes.

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, Oracle Certified, CA Articles from Big4

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a tax and IFRS coach and the founder of accountingblogger.com