Background

IFRS 5 outlines accounting for assets held for sale, presentation and disclosure requirements of discontinued operations. It will be applicable to a non-current asset or disposal group to be classified as held for sale if it’s carrying amount will be recovered principally through a sale transaction instead of through continuing use.

IFRS 5 was delivered in March 2004 and applicable to the annual periods start on or after 1 January 2005.

IFRS 5 was issued in March 2004 and applies to annual periods beginning on or after 1 January 2005.

Objective

The objective of IFRS 5 is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. In particular, the IFRS requires:

(a) assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease; and

(b) assets that meet the criteria to be classified as held for sale to be presented separately in the statement of financial position and the results of discontinued operations to be presented separately in the statement of comprehensive income.

Scope

• 1.     The classification and presentation requirements of this IFRS apply to all recognised non‑current assets and to all disposal groups of an entity. The measurement requirements of this IFRS apply to all recognised non‑current assets and disposal groups (as set out in point3), except for those assets listed on point 4 which shall continue to be measured in accordance with the Standard noted.

 

• 2.     Assets classified as non‑current in accordance with IAS 1 Presentation of Financial Statements shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this IFRS. Assets of a class that an entity would normally regard as non‑current that are acquired exclusively with a view to resale shall not be classified as current unless they meet the criteria to be classified as held for sale in accordance with this IFRS.

 

• 3.     Sometimes an entity disposes of a group of assets, possibly with some directly associated liabilities, together in a single transaction. Such a disposal group may be a group (or single or part) of cash‑generating units. The group may include any assets and any liabilities of the entity, including current assets, current liabilities and assets excluded by point 4 from the measurement requirements of this IFRS. If a non‑current asset within the scope of the measurement requirements of this IFRS is part of a disposal group, the measurement requirements of this IFRS apply to the group as a whole, so that the group is measured at the lower of its carrying amount and fair value less costs to sell. The requirements for measuring the individual assets and liabilities within the disposal group are set out in paragraphs 18, 19 and 23.

3.

• 4.     The measurement provisions of this IFRS Do NOT apply to the following assets, which are covered by the IFRSs listed, either as individual assets or as part of a disposal group:

(a)  deferred tax assets (IAS 12 Income Taxes).

(b)  assets arising from employee benefits (IAS 19 Employee Benefits).

(c)   financial assets within the scope of IFRS 9 Financial Instruments.

(d)  non‑current assets that are accounted for in accordance with the fair value model in IAS 40 Investment Property.

(e)  non‑current assets that are measured at fair value less costs to sell in accordance with IAS 41 Agriculture.

(f)    groups of contracts within the scope of IFRS 17 Insurance Contracts

 

• 5.     The classification, presentation and measurement requirements in this IFRS applicable to a non‑current asset (or disposal group) that is classified as held for sale apply also to a non‑current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners (held for distribution to owners).

 

• 6.     This IFRS specifies the disclosures required in respect of non‑current assets (or disposal groups) classified as held for sale or discontinued operations. Disclosures in other IFRSs do not apply to such assets (or disposal groups) unless those IFRSs require:

(a)  specific disclosures in respect of non‑current assets (or disposal groups) classified as held for sale or discontinued operations; or

(b)  disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and such disclosures are not already provided in the other notes to the financial statements.

Additional disclosures about non‑current assets (or disposal groups) classified as held for sale or discontinued operations may be necessary to comply with the general requirements of IAS 1, paragraphs 15 and 125 of that Standard

 

Key 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.

 

Costs to sell

The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.

 

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.

 

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

 

 

Classification of non‑current assets (or disposal groups) as held for sale or as held for distribution to owners

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.

 

Non‑current assets that are to be abandoned - An entity shall not classify as held for sale a non‑current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use.

However, if the disposal group to be abandoned meets the criteria of discontinued operation components described in the para of ‘’Presenting discontinued operations’’, the entity shall present the results and cash flows of the disposal group as discontinued operations in accordance with paragraphs 33 and 34 at the date on which it ceases to be used.

 

Measurement of non‑current assets (or disposal groups) classified as held for sale (HFS)

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.

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

New Asset considered HFS - If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale (see paragraph 11) then it will result in the asset (or disposal group) being measured on initial recognition at the lower of its carrying amount had it not been so classified (for example, cost)and fair value less costs to sell. Hence, if the asset (or disposal group) is acquired as part of a business combination, it shall be measured at fair value less costs to sell.

Expected sale - When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing cost.

Carrying amount - Immediately before the initial classification of the asset (or disposal group) as held for sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall be measured in accordance with applicable IFRSs.

Subsequent measurement - On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that are not within the scope of the measurement requirements of this IFRS, but are included in a disposal group classified as held for sale, shall be remeasured in accordance with applicable IFRSs before the fair value less costs to sell of the disposal group is remeasured.

 

Recognition of impairment losses and reversals

An entity shall recognise an impairment loss for any initial or subsequent write‑down of the asset (or disposal group) to fair value less costs to sell, to the extent that it has not been recognised in accordance with the measurement guidance on subsequent remeasurement of disposal.

 

An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognised either in accordance with this IFRS or previously in accordance with IAS 36 Impairment of Assets.

 

An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of a disposal group:

(a) to the extent that it has not been recognised in accordance with Subsequent measurement (described above); but

(b) not in excess of the cumulative impairment loss that has been recognised, either in accordance with this IFRS or previously in accordance with IAS 36, on the non‑current assets that are within the scope of the measurement requirements of this IFRS.

 

A gain or loss not previously recognised by the date of the sale of a non‑current asset (or disposal group) shall be recognised at the date of derecognition. Requirements relating to derecognition are set out in:

(a) paragraphs 67–72 of IAS 16 (as revised in 2003) for property, plant and equipment, and

(b) paragraphs 112–117 of IAS 38 Intangible Assets (as revised in 2004) for intangible assets.

 

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

 

Changes to a plan of sale or to a plan of distribution to owners

 

If an entity has classified an asset (or disposal group) as held for sale or as held for distribution to owners, but the requirement for held for sale or discontinuing operations are no longer met, the entity shall cease to classify the asset (or disposal group) as held for sale or held for distribution to owners (respectively). In such cases an entity shall follow the below mentioned guidelines. However, if an entity reclassifies an asset (or disposal group) directly from being held for sale to being held for distribution to owners, vice-versa then the change in classification is considered a continuation of the original plan of disposal.

Guidelines for change to a plan of sale:

The entity shall measure a non‑current asset (or disposal group) that ceases to be classified as held for sale or as held for distribution to owners at the lower of:

1.     Carrying value of the asset before its classification as held for sale, adjusted by any depreciation, amortization or revaluation that would have been charged if it was not classified as HFS

2.     Its recoverable amount at the date of the subsequent decision of not to sell.

 

If an entity removes an individual asset or liability from a disposal group classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the group meets the criteria of the standards.

The entity shall include any required adjustment to the carrying amount of a non‑current asset that ceases to be classified as held for sale. The entity shall present that adjustment in the same caption in the statement of comprehensive income used to present a gain or loss from held of sale operation.

 

Presentation and disclosure

An entity shall present and disclose information that enables users of the financial statements to evaluate the financial impacts of discontinued operations and disposals of non‑current assets (or disposal groups).

Presenting discontinued operations:

A component of an entity comprises ‘’operations’’ and ‘’cash flows’’ that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

A discontinued operation is 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.

 
Disclosure discontinuing operations:

A single amount in the statement of comprehensive income comprising the total of:

(i) the post‑tax profit or loss of discontinued operations and

(ii) the post‑tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation

 

The analysis may be presented in the notes or in the statement of comprehensive income (under sections on identified to discontinuing group). The analysis is not required for newly acquired asset which has met the criteria of IFRS 5.

The net cash flows attributable to the operating, investing and financing activities of discontinued operations. These disclosures may be presented either in the notes or in the financial statements.

The amount of income from continuing operations and from discontinued operations attributable to owners of the parent should be presented in notes or statement of comprehensive income.

 

Gains or losses relating to continuing operations

Any gain or loss on the remeasurement of a non‑current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation shall be included in profit or loss from continuing operations.

Presentation of a non‑current asset or disposal group classified as held for sale

·       An entity shall present a non‑current asset classified as held for sale (or disposal group) separately from other assets in the statement of financial position.

·       The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities in the statement of financial position. Those assets and liabilities shall not be offset and presented as a single amount.

·       The major classes of assets and liabilities classified as held for sale shall be separately disclosed either in the statement of financial position or in the notes. Though it will not be applicable newly acquired subsidiary.

·       An entity shall present separately any cumulative income or expense recognised in other comprehensive income relating to a non‑current asset (or disposal group) classified as held for sale.

Additional disclosures

An entity shall disclose the following information in the notes in the period in which a non‑current asset (or disposal group) has been either classified as held for sale or sold:

(a) a description of the non‑current asset (or disposal group);

(b) a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal;

(c) the gain or loss recognised in accordance with ‘’Recognition of impairment losses and reversals‘’ and, if not separately presented in the statement of comprehensive income, the caption in the statement of comprehensive income that includes the gain or loss;

(d) if applicable, the reportable segment in which the non‑current asset (or disposal group) is presented in accordance with IFRS 8 Operating Segments.

You may also refer the below article:-

IAS 32 Financial Instruments Presentation