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

“Non-current assets held for sale” deals with the situation where an entity decides that a non-current asset (which by definition is held for continuing use in the business) is no longer to be held for continuing use. Rather it is to be sold. “Discontinued operations” arise when an entity decides to discontinue a part of its business.

Control – Joint control – Significant influence

This is a discussion on IFRS 10 – IFRS 12 Control, Joint control, Significant influence and the accounting applied. It is added with some other logical IFRS topics: the fair value option and the other investments (no control, no joint control and no significant influence).

ControlControl of an investee Control of an investee

Consolidated subsidiaries – Consolidated structured entities

For an investor to control an investee, the investor must possess all of the following elements:

  • Power over the investee, which is described as having existing rights that give the current ability to direct the activities of the investee that significantly affect the investee’s returns (such activities are referred to as the ‘relevant activities’)
  • Exposure, or rights, to variable returns from its
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Plan to sell a factory Highly probable?

An entity is committed to a plan to sell a factory. The production cycle is six months and pollutants are involved. The company must meet its existing orders. Dismantling the equipment and cleaning up the pollution will put the facility out of action for six months. Does the factory meet the criterion of ‘availability for immediate sale’? Highly probable?

No. The fact that several months must be spent fulfilling existing orders and then dismantling and cleaning the factory means that it is not available for immediate sale in its present condition. Therefore, the factory cannot be classified as held for sale at the date of the decision to sell.Plan to sell a factory Highly probable Plan to sell a factory Highly probable

When a sale is ‘highly probable'? Highly probable?

IFRS 5 … Read more

Non-current assets held-for-sale

To understand it properly, take a brief look back at IAS 1, Presentation of Financial Statements.

In most cases, IAS 1 requires an entity to present current and non-current assets and liabilities separately in the statement of financial position. While current assets (and liabilities) are clearly defined by the standard, non- current assets (and liabilities) are defined by default: “An entity shall classify all other assets as non-current”.

The rules on classification and presentation given in IFRS 5 apply to all non-current assets, as well as all disposal groups. A disposal group is defined in the standard as “a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and … Read more

Presentation in profit or loss of discontinued operations

The profit or loss for the year on discontinued operations is presented as a separate line in the statement of profit or loss and other comprehensive income after the figure ‘profit for the year’.

The line items from ‘Revenue’ to ‘profit for the year’ should therefore include continuing operations only. The figure for discontinued operations should include the post tax gain or loss on disposal of the assets of the operation (if sold) or the gain or loss on re-measurement following transfer to ‘held for sale’ (if relevant).

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Measurement – Building held for sale

Pinch plc owns a building which it has used for many years as a factory. On 1 January 2012 the building had a carrying value of €15m with an estimated useful economic life of 15 years. Pinch uses the cost model under IAS 16 to account for buildings.

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Discontinued operations

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

  1. represents a separate major line of business or geographical area of operations,
  2. 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.
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Assets held for sale – Measurement

Once the decision has been made to classify an asset as ‘held for sale’ in accordance with the 5 conditions mentioned in Non-current assets held for sale, the question of measurement arises. At what value will we carry the asset within current assets? IFRS 5 requires the following procedure:

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Acquisitions exclusively with a view to disposal

Entities often acquire non-current assets exclusively with a view to disposal. Such a non-current asset will be classified as held-for-sale at the date of the acquisition only if it is anticipated that it will be sold within the one-year period, and it is highly probable that the held-for-sale criteria will be met within a short period (normally three months) of the acquisition date.

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Discontinued Operations

A discontinued operation is a component of an entity that either 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.

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The sale of a building and the sale of part of the business

The case:

An entity has agreed in a directors’ meeting to sell a building, and has tentatively started looking for a buyer for the building. The price of the building has been fixed at $4m and a surveyor has valued the building based on market prices at $3.6m. The entity will continue to use the building until another building has been found with equivalent facilities, and in a suitable location for the office staff, who will not be relocated until the new building has been found.

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