Cash flows from discontinued operations IFRS 5 – 2 Detailed Examples

 Cash flows from discontinued operations – Detailed Examples

IAS 7 requires an entity to include all of its cash flows in the statement of cash flows, including those generated from both continuing and discontinued activities.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires an entity to disclose its net cash flows derived from operating, investing and financing activities in respect of discontinued operations. There are two ways in which this can be achieved:

===1) Presentation in the statement of cash flows

Net cash flows from each type of activity (operating, investing and financing) derived from discontinued operations are presented separately in the statement of cash flows.

===2) Presentation in a note

Cash flows from discontinued operations are included together with cash flows from continuing operations in each line Cash flows from discontinued operationsitem in the statement of cash flows. The net cash flows relating to each type of activity (operating, investing and financing) derived from discontinued operations are then disclosed separately in a note to the financial statements.

When a disposal group that meets the definition of a discontinued operation is classified as held for sale in the current period, and has not been realised/disposed of at the entity’s reporting date, the closing balance of cash and cash equivalents presented in the statement of cash flows will not reconcile to the cash and cash equivalents balances that are included in the statement of financial position at the reporting date.

This is because the cash and cash equivalents related to the disposal group are subsumed into the assets and liabilities of the disposal group and presented within the single line item in the statement of financial position.

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

 

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

at a glance – here it is the ultimate summary:

IFRS 5

Source: https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance

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. Discontinued operation – A component of an entity that either has been disposed of or is classified as held for sale and either:
  • Represents a separate major line of business or geographical area
  • Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations
  • Is a subsidiary acquired exclusively with a view to resale.
SCOPE
  • Applies to all
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Non-current assets held for sale

Non-current assets held for sale

Held for sale or held for distribution

It is important for non-current assets held for sale to establish the potential or distribution of ownership:

  1. Non-current assets and some groups of assets and liabilities (‘disposal groups’) are classified as held-for-sale
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Discontinued operation

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale that meets certain criteria.

Non-current Assets Held for Sale and Discontinued Operations

Non-current Assets Held for Sale and Discontinued Operations – There are two distinct parts to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Both are related and can occur together, but each can also occur independently of the other.

Non-current assets held for sale” deals with the situation where an entity decides that a non-Read more

1 Fine Read – Measurement of Building held for sale

Measurement of Building held for sale

This is a case for the measurement of building held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

The case

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.

On 1 April 2012 Pinch plc commenced operations in a new building, and the old one was placed on the market as it was no longer being used. The estimated proceeds of sale were €13 million, less selling costs of … Read more

Non-current assets held-for-sale

Non-current assets held-for-sale explains the accounting for a disposal group rather than single assets. What about the liabilities in the sale activity?

To understand it properly, take a brief look back at IAS 1, Presentation of Financial Statements. Here is the look back….. Non-current assets held-for-sale

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 … Read more

1 Fine Action 2 Best Read – Plan to sell a factory Highly probable?

Plan to sell a factory Highly probable explores the meaning of highly probable in accounting for IFRS 5 through a clear case.

The case

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’?

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 … Read more

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: and the other investments (no control, no joint control and no significant influence), which is depicted in the following schedule:

Control Joint control Significant influence

It is building up from … Read more

Assets held for sale measurement

Assets held for sale measurement is part of IFRS 5 Non-current assets held for sale and discontinued operations. Plans to dispose of assets may be an indicator that the asset(s) may be impaired and may accordingly trigger impairment testing procedures. Any impairments (or reversals of previous impairments) are recognised before the entity classifies the asset(s) as held for sale (see step 1 below).

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:

  1. Before transfer to ‘held for sale’,
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