(Last Updated On: July 1, 2017)
IFRS 5 Non Current Assets Held for Sale
IFRS 5 Non Current Assets Held for Sale and Discontinued operations give us guidelines that how entities should account for the non-current asset held for sale and discontinued operations. according to IFRS 5 Non Current Assets Held for Sale, assets held for the in the financial statements are not depreciated and these assets are measured at lower of;
- Carrying amount
- Fair Value less cost to sell
According to IFRS 5 Non Current Assets held for sale presented separately in the statement of financial position and specific disclosures provided against the discontinued operations. IFRS 5 issued in the March 2004 and started to apply to the periods on or after 2005.
Classification of an Asset as Held for Sale;
- Management has decided or committed to selling the asset
- The asset is available for sale in current situation
- There is an active program or campaign to find out the buyer
- The sale is highly probable and expected to take place within 12 months
- The marketing of the asset started and the sale price of the asset is reasonable
- There are no chances of withdrawing the plan to sell the asset to the management
One important thing the asset must be disposed of through sale. Therefore, operations, which are abandoned, would not meet these criteria. These operations can be classified as discontinued operation once abandon.
If a parent company is going to sell a subsidiary, and this sale involves loss of control on that subsidiary. This will qualify as held for sale under IFRS 5 and classify all the assets and liabilities of that subsidiary as held for sale. This subsidiary will also deal as held for sale if the parent only partially sells the subsidiary and hold a non-controlling interest in that company.
Distribution to the Owners
The non-current assets held for distribution will also deal under the IFRS 5. The classification, presentation and measurement deals under IFRS 5. Assets are immediately available for distribution, highly probable and the entity must be committed to distributing the assets.
Disposal Group Concept
A disposal group is a group of assets, which may have some possible liabilities, and the entity wants to sell or dispose of this group in one transaction. The amount of this disposal group will be calculated as a whole and the impairment loss will reduce the carrying amount of the group.
Measurement of IFRS 5 NON CURRENT ASSET HELD FOR SALE
- At the time of the classification asset, carrying amount will be measured according to the applicable standard.
- After classification non-current asset will be measured the lower of carrying amount and fair value less cost to sell.
- Impairment also considered at or after the classification as held for sale. Any impairment measured under IFRS 5 will charge to Profit and Loss statement.
- If asset previously calculated on the fair value basis, the cost to sell will be charged to Profit and loss directly.
- No depreciation will be charged after classification as held for sale or disposal group.
- Subsequent gain the fair value will directly be recognized in the profit and loss statement, not more than previously recognized impairment according to IAS 36.
The measurement basis of IFRS 5 does not apply to different standards for example;
- Deferred tax assets (IAS 12)
- Assets arising from employee benefits (IAS 19)
- Financial assets, which are under the scope of (IFRS 9)
- Non-current assets in Agriculture (IAS 41)
- Insurance contracts (IFRS 4)
The asset classified as held for sale and the disposal group assets and liabilities presented separately of the face of the statement of financial position.
- Provide the description of the asset or the disposal group
- What are the facts for sale?
- If there is any impairments or reversal.
- The reportable segments in which the Non-Current Assets related.
A Discontinued operation is a component of an entity, which has stopped working and now classified as held for sale under IFRS 5.
It may be a separate major line of business, is a single coordinated plan to sell a separate major line of business. A subsidiary, which solely acquired for to sale.
Note: IFRS 5 does not permit or allow to retroactive classification as the discontinued operation. You cannot apply it is a group has stopped working due to any ban from the government.