Chapter9 noncurrentassetsheldforsale2008

Gripping IFRS Non-current assets held for sale and discontinued operations

Chapter 9
Non-current Assets Held for Sale and Discontinued Operations

Reference: IFRS 5

Contents: Page

1. Introduction 310
2. Definitions 310
3. Non-current assets held for sale: identification 311
3.1 Overview 311
3.2 Criteria to be met before a non-current asset is classified as ‘held for sale’ 311
3.2.1 General criteria 311
3.2.2 Criteria where a completed sale is not expected within one year 311
3.2.3 Criteria where the asset is acquired with the intention to sell 312
4. Non-current assets held for sale: measurement 312
4.1 General measurement principles 312
4.2 Measurement principles specific to the cost model 313
4.2.1 The basic principles when the cost model was used 313
Example 1: reclassification of an asset measured using the cost model 313
Example 2: reclassification of an asset measured using the cost model 315
4.2.2 The tax effect when the cost model was used 316
Example 3: tax effect of reclassification and the cost model 316
4.3 Measurement principles specific to the revaluation model 317
4.3.1 The principles when the revaluation model was used 317
Example 4: reclassification of an asset using the revaluation model 318
Example 5: re-measurement of an asset held for sale, using the 320
revaluation model
4.4 Reversal of classification as ‘held for sale’ 321
Example 6: re-measurement of assets no longer ‘held for sale’ 322

5. Non-current assets held for sale: disclosure 322
5.1 Overview 322
5.2 In the statement of financial position 322
5.3 In the statement of financial position or notes thereto 323
5.4 Other note disclosure 323
Example 7: disclosure of non-current assets held for sale 323

6. Discontinued operations: identification 325
7. Discontinued operations: measurement 325
8. Discontinued operations: disclosure 326
8.1 In the statement of comprehensive income 326
8.2 In the statement of cash flows 327
8.3 Other note disclosure 328
8.3.1 Components no longer held for sale 328
8.3.2 Criteria met after the end of the reporting period 328
9. Summary 329

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1. Introduction

As its name suggests, this IFRS covers two areas, namely:
• non-current assets held for sale; and
• discontinued operations.

With regard to ‘non-current assets’, this IFRS essentially suggests that there needs to be a
further classification in the statement of financial position: ‘non-current assets held for sale’.
In addition, it specifies that ‘held for sale assets’ are not to be depreciated.

This IFRS does not apply to the following assets since these assets are covered by their own
specific standards:
• Deferred tax assets (IAS 12)
• Assets relating to employee benefits (IAS 19)
• Financial assets (IAS 39)
• Investment property measured under the fair value model (IAS 40)
• Non-current assets measured at fair value less point-of-sale costs (IAS 41: Agriculture)
• Contractual rights under insurance contracts (IFRS 4)

2. Definitions

Definitions included in Appendix A of the IFRS include the following:
• Current asset: an asset
- that is expected to be realised within 12 months after the end of the reporting period;
- that is expected to be sold, used or realised (converted into cash) as part of the
normal operating cycle;
- that is held mainly for the purpose of being traded; or
- that is a cash or cash equivalents that is not restricted in use within the 12 month
period after the end of the reporting period.
• non-current asset: an asset that does not meet the definition of a current asset
• 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 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.
• disposal group: a group of assets to be disposed of, by sale or otherwise, together as a
group in a single transaction, and liabilities directly associated with those assets that will
be transferred in the transaction. The group includes goodwill acquired in a business
combination if the group is a cash-generating unit to which goodwill has been allocated in
accordance with the requirements of paragraphs 80-87 of IAS 36 Impairment of Assets
(as revised in 2004) or if it is an operation within a cash-generating unit.
• firm purchase commitment: an agreement with an unrelated party, binding on both
parties and usually legally enforceable, that:
a) specifies all significant terms, including the price and timing of the transactions; and
b) includes a disincentive for non-performance that is sufficiently large to make
performance highly probable.
• highly probable: significantly more likely than probable.
• probable: more likely than not.

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3. Non-current assets held for sale: identification (IFRS 5.6 - .12)

3.1 Overview

The main thrust of IFRS 5 is that non-current assets that are ‘held for sale’ must be classified
separately in the statement of financial position (i.e. a machine that is held for sale will no
longer be included as part of property, plant and equipment). Certain criteria must first be
met before a non-current asset is classified as a ‘non-current asset held for sale’.

3.2 Criteria to be met before a non-current asset is classified as ‘held for sale’

3.2.1 General criteria

A non-current asset (or disposal group) must be classified as held for sale if its carrying
amount will be recovered mainly through a sale transaction than through continuing use.

Non-current assets that meet all the following criteria may be separately classified as ‘non-
current assets held for sale’:
• Is the asset available for sale immediately and at normal terms? The asset (or disposal
group) must be available for immediate sale in its present condition subject only to terms
that are usual and customary for sales of such assets (or disposal groups);
• Has management committed itself to a sales plan? Management, with the necessary
authority to approve the action, must have committed itself to a plan to sell;
• Has an active programme to sell begun? The active programme must be to both locate a
buyer and to complete the plan to sell the asset (or disposal group);
• Is the sale expected to happen within one year? The sale must be expected to qualify for
recognition as a completed sale within one year from the date of classification as held for
sale, except as permitted by paragraph 9 and appendix B;
• Is the expected selling price reasonable? The asset (or disposal group) must be actively
marketed at a price that is reasonable in relation to its current fair value; and
• Is it unlikely that significant changes to the plan will be made? The actions required to
complete the plan must indicate that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.

This means that assets that are to be abandoned should not be classified and measured as
‘held for sale’ since their carrying amount will be recovered principally through continuing
use (until date of abandonment) rather than through a sale. This means that depreciation on
assets that are to be abandoned should not cease.

3.2.2 Criteria where a completed sale is not expected within one year (Appendix B)

There may be occasions where the asset would still be ‘held for sale’ even though the sale
may not be completed and recognised as a sale within one year. This happens when:
• At the date that the entity commits itself to a plan to sell a non-current asset (or disposal
group), it reasonably expects that others (not a buyer) will impose conditions on the
transfer of the asset (or disposal group) that will extend the period required to complete
the sale, and:
- actions necessary to respond to those conditions cannot be initiated until after a firm
purchase commitment is obtained, and
- a firm purchase commitment is highly probable within one year.
• An entity obtains a firm purchase commitment and, as a result, a buyer or others
unexpectedly impose conditions on the transfer of a non-current asset (or disposal group)
previously classified as held for sale that will extend the period required to complete the
sale, and:
- timely actions necessary to respond to the conditions have been taken, and
- a favourable resolution of the delaying factors is expected.

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• During the initial one-year period, circumstances arise that were previously considered
unlikely and, as a result, a non-current asset (or disposal group) previously classified as
held for sale is not sold by the end of the period, and:
- during the initial one-year period the entity took action necessary to respond to the
change in circumstances,
- the non-current asset (or disposal group) is being actively marketed at a price that is
reasonable, given the change in circumstances, and
- the criteria in paragraph 7 (that sets out that the asset must be available for immediate
sale) and paragraph 8 (that sets out that the sale must be highly probable) are met.

3.2.3 Criteria where the asset is acquired with the intention to sell (IFRS 5.11)

It may happen that an entity acquires a non-current asset (or disposal group) exclusively with
the view to its subsequent disposal. In this case, the non-current asset must be classified as
‘held for sale’ immediately on acquisition date, on condition that:
• the one-year requirement is met (unless a longer period is allowed by paragraph 9 and the
related appendix B); and
• it is highly probable that any other criteria given in para 7 and para 8 that are not met
immediately on the date of acquisition, will be met within a short period (usually three
months) after acquisition.

4. Non-current assets held for sale: measurement (IFRS 5.15 - .25)

4.1 General measurement principles

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.

If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale,
applying paragraph 15 will result in the asset being measured on initial recognition at the
lower of its carrying amount had it not been so classified (e.g. cost) and fair value less costs to
sell. Since the asset is newly acquired, its cost will equal its fair value. Therefore, an asset
acquired as part of a business combination, shall initially be measured at fair value (its cost)
less costs to sell.

For all other assets (other than newly acquired assets) that are classified as non-current assets
held for sale, there are two distinct phases of its life:
• Before it was classified as held for sale; and
• Once it is classified as held for sale.

Before an asset is classified as held for sale, it is measured in terms of its own relevant IFRS.
If, for example, the asset is an item of property, plant and equipment, the asset will have been
measured in terms of IAS 16, which will mean that:
• on initial acquisition, the asset will have been recorded at cost; and
• subsequently, the asset will have been depreciated, revalued (if the revaluation model
was used to measure the asset) and reviewed for impairments annually (whether the cost
or revaluation model were used).

If this asset is then to be reclassified as ‘held for sale’, it will be measured as follows:
• In terms of its previous relevant IFRS:
Immediately before reclassifying the asset as ‘held for sale’, the asset must be re-
measured using its previous measurement model; for example if the asset was previously
an item of property, plant and equipment that was measured using the:
• Cost model: depreciate to date of reclassification and then check for impairments; or
• Revaluation model: depreciate to date of reclassification, revalue if appropriate and
check for impairments; then

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• In terms of IFRS 5:
On reclassifying the asset as ‘held for sale’,
- re-measure to the lower of ‘carrying amount’ and ‘fair value less costs to sell’; and
- stop depreciating it.

If, in the unusual instance a sale is not expected to occur within one year, it may be necessary
(depending on materiality) to measure the ‘costs to sell’ at their present value.

4.2 Measurement principles specific to the cost model

4.2.1 The basic principles when the cost model was used

If an asset measured under the cost model is re-classified as ‘held for sale’:
• immediately before reclassifying the asset as ‘held for sale’, the asset must be re-
measured using its previous measurement model (i.e. the cost model per IAS 16, if the
item was previously property, plant and equipment);
• then, in terms of IFRS 5:
- re-measure it to the lower of ‘carrying amount’ and ‘fair value less costs to sell’;
- stop depreciating it; and
- re-measure to ‘fair value less costs to sell’ whenever appropriate: any impairment loss
will be expensed in the statement of comprehensive income whereas impairment
losses reversed are recognised as income but are limited to the asset’s accumulated
impairment losses.

You may have noticed that, when using the cost model, there can be no initial increase in the
carrying amount on classification as ‘held for sale’ because the non-current asset must
initially be measured at the lower of its ‘carrying amount’ and ‘fair value less costs to sell’.
For example, an asset with a ‘carrying amount’ of 80 000 and ‘fair value less costs to sell’ of
90 000 will not be adjusted because the lower of the two is the current carrying amount of
80 000.

Example 1: reclassification of an asset measured using the cost model

An item of plant, measured using the cost model, has a carrying amount of C80 000 (cost:
100 000 and accumulated depreciation: 20 000) on 1 January 20X3 on which date all criteria
for separate classification as a ‘non-current asset held for sale’ are met.

Required:
Show the journal entries relating to the reclassification of the plant assuming that:
A. the fair value is C70 000 and the expected costs to sell are C5 000 on 1 January 20X3;
B. on 30 June 20X3 (6-months later), the fair value is C70 000 and expected costs to sell are
C2 000;
C. on 30 June 20X3 (6-months later), the fair value is C90 000 and expected costs to sell are
C5 000.

Solution to example 1: reclassification of an asset using the cost model

Comment: this example explains the limit to the reversal of the impairment loss.

A. If carrying amount > ‘fair value less costs to sell’: recognise an ‘impairment loss’ (expense)

Workings: C

Carrying amount given 80 000
Fair value less costs to sell: 70 000 – 5 000 (65 000)
Decrease in value (impairment loss) 80 000 – 65 000 15 000

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Journal: 1 January 20X3 Debit Credit

Impairment loss (expense) 15 000
- Plant: accumulated impairment loss 15 000
Impairment loss before initial classification as ‘held for sale’

Note: There is no depreciation on this asset.

B. If ‘fair value less costs to sell’ subsequently increases: recognise a ‘reversal of impairment loss’
(income) – limited to accumulated impairment losses

Workings: C

New fair value less costs to sell: 70 000 – 2 000 68 000
Prior fair value less costs to sell: 100 000 cost – 20 000 accum depreciation – (65 000)
15 000 impairment loss
Impairment loss reversed*: 68 000 – 65 000 3 000

* Note: the ‘accumulated impairment loss’ is 15 000 before the reversal, thus the reversal of 3 000 is
not limited (the previous accumulated impairment loss is bigger: 15 000 is bigger than 3 000).

Journal: 30 June 20X3 Debit Credit

Plant: accumulated impairment loss 3 000
- Impairment loss reversed (income) 3 000
Reversal of impairment loss: on re-measurement of ‘NCA held for sale’

Note: There is no depreciation on this asset. The impairment to date is C12 000 (15 000 – 3 000)

C. If ‘fair value less costs to sell’ subsequently increases: recognise a ‘reversal of impairment loss’

Workings: C

Prior fair value less costs to sell 100 000 – 20 000 accum depreciation – (65 000)
15 000 impairment loss
Increase in value 20 000
Limited to prior cumulative impairment losses 15 000
Impairment loss reversed*: 85 000 – 65 000 = 20 000 limited to 15 000 15 000

* Note: the difference between the latest ‘fair value less costs to sell’ (85 000) and the prior ‘fair value
less costs to sell’ (65 000) of 20 000 is limited to the previous ‘accumulated impairment loss’ of 15
000.


Reversal of impairment loss on re-measurement of ‘non-current asset held
for sale’

Note: There is no depreciation on this asset. The impairment to date is C0 (15 000 – 15 000)

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Example 2: reclassification of an asset measured using the cost model

An item of plant, measured using the cost model (i.e. at historical carrying amount), has a
carrying amount of 80 000 (cost 100 000) on 1 January 20X3 on which date all criteria for
separate classification as a ‘non-current asset held for sale’ are met. This asset had previously
been impaired by 3 000 (i.e. this is the balance on the accumulated impairment loss account).

Required:
Show the journal entries relating to the reclassification of the plant assuming:
A. the fair value is 70 000 and the expected costs to sell are 5 000 on 1 January 20X3;
B. 6 months later, on 30 June 20X3, the fair value is 70 000 and the expected costs to sell are
2 000;
C. 6 months later, on 30 June 20X3, the fair value is 90 000 and the expected costs to sell are
5 000.

Solution to example 2: reclassification of an asset measured using the cost model

Comment: this example explains the limit to the reversal of the impairment loss. It differs from the
previous example in that this asset had previously been impaired before it was reclassified as a non-
current asset held for sale.

A. If carrying amount > ‘fair value less costs to sell’: recognise an ‘impairment loss’ (expense)

Workings: C
Carrying amount given 80 000
Fair value less costs to sell: 70 000 – 5 000 (65 000)
Decrease in value (impairment loss) 80 000 – 65 000 15 000

Journal: 1 January 20X3 Debit Credit
- Plant: accumulated impairment loss 15 000
Impairment loss on initial classification of NCA as ‘held for sale’

Note: There is no depreciation on this asset. The impairment to date is now C18 000 (3 000 + 15 000)

B. If ‘fair value less costs to sell’ subsequently increases: recognise a ‘reversal of impairment loss’

Workings: C

New fair value less costs to sell 70 000 – 2 000 68 000
Prior fair value less costs to sell 70 000 – 5 000 (65 000)
Increase in value (impairment loss reversed*) 68 000 – 65 000 3 000

* Note: the ‘accumulated impairment loss’ is 18 000 before this reversal (15 000 + 3 000), therefore
the impairment loss reversal of 3 000 is not limited (the previous accumulated impairment loss is
bigger: 18 000 is bigger than 3 000).


Reversal of impairment loss on re-measurement of ‘asset held for sale’

Note: There is no depreciation on this asset. The impairment to date is now C15 000 (18 000 - 3 000)

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C. If ‘fair value less costs to sell’ subsequently increases: recognise a ‘reversal of impairment loss’

Workings: C

Prior fair value less costs to sell 70 000 – 5 000 (65 000)
Limited to prior cumulative impairment losses 15 000 + 3 000 18 000
Impairment loss reversed*: 85 000 – 65 000 = 20 000 limited to 15 000 18 000

* Note: The difference between the latest ‘fair value less costs to sell’ and the prior ‘fair value less
costs to sell’ of 20 000 is limited to the ‘cumulative impairment loss’ recognised of 18 000, calculated
as follows:
C
Impairment loss: 18 000
- before reclassification given 3 000
- on reclassification 80 000 – 65 000 15 000


Reversal of impairment loss on re-measurement of ‘asset held for sale’

Note: There is no depreciation on this asset. The impairment to date is now C0 (18 000 - 18 000)

4.2.2 The tax effect when the cost model was used

As soon as an asset is classified as held for sale, depreciation thereon ceases. The tax
authorities, however, do not stop deducting tax allowances (where tax allowances were due in
terms of the tax legislation) simply because you have decided to sell the asset. The difference
between the nil depreciation and the tax allowance (if appropriate) causes deferred tax. The
principles affecting the current tax payable and deferred tax balances are therefore exactly the
same as for any other non-current asset.

Example 3: tax effect of reclassification and the cost model

An item of plant, measured using the cost model (i.e. at historical carrying amount), has a
carrying amount of C70 000 (cost 100 000) and a tax base of C90 000 on 1 January 20X3 on
which date all criteria for separate classification as a ‘non-current asset held for sale’ are met.
The fair value less costs to sell on this date are C65 000. This asset had not previously been
impaired. The tax authorities allow a deduction of 10% on the cost of this asset. The tax rate
is 30%. The profit before tax is correctly calculated to be C200 000. There are no temporary
or permanent differences other than those evident from the information provided.

Required:
A. Calculate the current normal tax payable and the deferred tax balance at 31 December
20X3.
B. Journalise the current normal tax and the deferred tax for the year ended 31 December
20X3.

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Solution to example 3: tax effect of reclassification and the cost model

A: Calculations

Current normal income tax Calculations C

Profit before tax 200 000
Add back depreciation Assets held for sale are not depreciated 0
Add back impairment Impairment on re-classification as ‘held for sale’ 5 000
Less tax allowance 100 000 x 10% (10 000)
Taxable profits 195 000
Current tax 195 000 x 30% 58 500

Deferred tax: Carrying Tax Temporary Deferred
Non-current asset held for sale amount base difference tax

Balance – 1 January 20X3 70 000 90 000 20 000 6 000 Asset
Less impairment to ‘fair value –
(5 000) 0 Cr DT,
costs to sell’ (70 000 – 65 000) (1 500)
Dr TE
Depreciation/ tax allowance 0 (10 000)
Balance – 31 December 20X3 65 000 80 000 15 000 4 500 Asset

B: Journals

31 December 20X3 Debit Credit

Tax expense 58 500
Current tax payable (liability) 58 500
Current normal tax payable (estimated)

Tax expense 1 500
Deferred tax (liability) 1 500
Deferred tax adjustment

4.3 Measurement principles specific to the revaluation model

4.3.1 The principles when the revaluation model was used

If an asset measured under the revaluation model is reclassified as ‘held for sale’:

• immediately before reclassifying the asset as ‘held for sale’, the asset must be re-
measured using its previous measurement model (i.e. the revaluation model per IAS 16);

• then, in terms of IFRS 5:
- re-measure it to the lower of ‘carrying amount’ and ‘fair value less costs to sell’;
- stop depreciating it; and
- then re-measure it to ‘fair value less costs to sell’ whenever appropriate: any further
impairment loss (e.g. the selling costs) is expensed (even if there is a revaluation
surplus) whereas an impairment loss reversed is recognised as income but is limited
to the asset’s accumulated impairment losses.

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Example 4: reclassification of an asset measured using the revaluation model

An item of plant, revalued to fair value using the revaluation model, met all criteria for
classification as ‘held for sale’ on 1 January 20X4. The following information is relevant:

Cost: 100 000 (purchased 1 January 20X1)
Depreciation: 10% per annum straight-line to nil residual values.
Fair value: 120 000 (revalued 1 January 20X3).
Revaluations are performed using the net replacement value method

Required:
Show all journal entries relating to the reclassification as ‘held for sale’ assuming that:
A. The fair value is C100 000 and the expected selling costs are C9 000 on 1 January 20X4;
B. The fair value is C150 000 and the expected selling costs are C20 000 on 1 January 20X4.
C. The fair value is C60 000 and the expected selling costs are C20 000 on 1 January 20X4.

Solution to example 4: reclassification of an asset measured using the revaluation model

A. If the actual carrying amount > historical carrying amount (i.e. there is already a revaluation
surplus) and the fair value decreases on date of reclassification (although not entirely
removing the revaluation surplus balance) and there are costs to sell: reverse revaluation
surplus due to drop in fair value and recognise selling costs as an ‘impairment loss’ (expense)

Workings: C

Fair value (1 January 20X3) 120 000
Accumulated depreciation (31 December 20X3: since 120 000/ 8 remaining years (15 000)
the revaluation on 1 January 20X3)
Actual carrying amount (1 January 20X4): 120 000 – 15 000 105 000
Fair value Given (100 000)
Decrease in value (all through revaluation surplus) See below for calculation of RS balance 5 000

Actual carrying amount (1 January 20X4): 120 000 – 15 000 (above) 105 000
Historical carrying amount (1 January 20X4) 100 000/ 10 years x 7 years (70 000)
Balance on the revaluation surplus (1 January 20X4): Proof: (120 000 – 80 000) / 8 x 7 years 35 000
Decrease in value (above) (5 000)
Balance on the revaluation surplus (1 January 20X4): Further balance against which further 30 000
devaluation would be processed (IAS16)

Journals: 1 January 20X4 Debit Credit

Plant: accumulated depreciation and impairment losses 15 000
- Plant: cost 15 000
NRVM: Accumulated depreciation set-off against cost

Revaluation surplus FV: C100 000 – Carrying amount: C105 000 5 000
- Plant: cost 5 000
Re-measurement to FV before reclassification

Impairment loss (selling costs) (expense) 9 000
- Plant: accumulated depreciation and impairment losses 9 000
Re-measurement to lower of CA or FV less costs to sell on reclassification:
CA: 100 000 – FV less Costs to Sell: (100 000 – 9 000)

Note: There is no further depreciation on this asset.

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B. If the actual carrying amount > historical carrying amount (i.e. there is already a revaluation
surplus) and fair value increases and there are expected costs to sell: increase revaluation
surplus due to increase in fair value and recognise the expected selling costs as an ‘impairment
loss’ (expense)

Workings: C

Fair value 120 000
Accumulated depreciation (31 December 20X3: 120 000/ 8 remaining years (15 000)
since the revaluation on 1 January 20X3)
Fair value given 150 000
Increase in value (all through revaluation surplus) Through revaluation surplus (45 000)
because carrying amount is already
above the HCA: 100 000 / 10 x 7

NRVM: Accumulated depreciation set-off against cost: 120 000/ 8 years
remaining on date of revaluation
Plant: cost 45 000
- Revaluation surplus 45 000
Re-measurement to FV before reclassification:
FV: 150 000 – Carrying amount: 105 000
Re-measurement to lower of CA or FV less costs to sell on
reclassification:
Carrying amount: 150 000 – FV less costs to sell: (150 000 – 20 000)

C. If the actual carrying amount > historical carrying amount (i.e. there is already a
revaluation surplus) and fair value decreases removing the entire balance on the
revaluation surplus and there are expected costs to sell: reverse revaluation surplus
due to decrease in fair value and recognise the expected selling costs as an ‘impairment
loss’ (expense)

Workings: C
Fair value 120 000
Accumulated depreciation (31 December 20X3: since 120 000/ 8 years (15 000)
the revaluation on 1 January 20X3)
Fair value given (60 000)
Decrease in value (all through revaluation surplus) See below for calculation of RS bal 45 000

Historical carrying amount (1 January 20X4) 100 000/ 10years x 7 years (70 000)
Balance on the revaluation surplus (1 January 20X4): (120 000 – 80 000) / 8 x 7 years 35 000
Decrease in value (above) 45 000
Reversal: revaluation surplus balance Balance in this account (above) 35 000
Impairment loss (balancing figure) 45 000 – 35 000 10 000

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NRVM: Accumulated depreciation set-off against cost: 120 000/ 8 years
remaining on date of revaluation
Revaluation surplus (ACA: 105 000 – HCA: 70 000) 35 000
Impairment loss (HCA: 70 000 – FV: 60 000) 10 000
Re-measurement to FV before reclassification: FV: 60 000 – CA: 105 000
Re-measurement to lower of CA or FV less costs to sell on reclassification:
CA: 60 000 – FV less costs to sell (60 000 – 20 000)

Example 5: re-measurement of an asset held for sale using the revaluation model

An item of plant, revalued to fair value using the revaluation model, met all criteria for
classification as ‘held for sale’ on 1 January 20X4. The following information is relevant:

Cost: 100 000 (purchased 1 January 20X1)
Depreciation: 10% per annum straight-line to nil residual values.
Fair value: 120 000 (revalued 1 January 20X3).
Revaluations are performed using the net replacement value method
The ‘fair value less costs to sell’ on 1 January 20X4 was as follows:
• Fair value (1 January 20X4): 100 000; and
• Expected selling costs (1 January 20X4): 9 000.

Required:
Show all journal entries relating to the re-measurement of the ‘non-current asset held for sale’
on 30 June 20X4 assuming that on the 30 June 20X4:
A. The fair value is 110 000 and the expected selling costs are 15 000;
B. The fair value is C110 000 and the expected selling costs are C3 000;
C. The fair value is 90 000 and the expected selling costs are 3 000.

Solution to example 5: re-measurement of an asset held for sale: the revaluation model

Comment: this example explains the limit on the impairment loss that may be reversed.

A. If the new fair value less costs to sell > previous fair value less costs to sell:
reverse the impairment loss limited to prior cumulative impairment losses

Workings: C

New fair value less costs to sell (30 June 20X4) 110 000 (FV) – 15 000 (cost to sell) 95 000
Prior fair value less costs to sell (1 January 20X4) 100 000 (FV) – 9 000 (costs to sell) (91 000)
Limited to prior cumulative impairment losses 100 000 (FV before reclassification) – 9 000
91 000 (FV – costs to sell)
Therefore: impairment loss reversed Maximum that may be reversed is 9 000; 4 000
thus there is no limitation to the reversal
in this case

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Journals: 30 June 20X4 Debit Credit
Re-measurement of non-current asset held for sale: increase in fair value
less costs to sell

B. If the new fair value less costs to sell > previous fair value less costs to sell:
reverse the impairment loss limited to prior cumulative impairment losses

Workings: C
Prior fair value less costs to sell (1 January 20X4) 100 000 (FV) – 9 000 (costs to sell) (91 000)
Limited to prior cumulative impairment losses 100 000 (FV before reclassification) – 9 000
91 000 (FV – costs to sell)
Therefore: reversal of impairment loss 9 000

- Reversal of impairment loss (income) 9 000
Re-measurement of non-current asset held for sale: increase in fair value
less costs to sell (limited to 9 000)

C. If the new fair value less costs to sell < previous fair value less costs to sell:
recognise a further impairment loss

Workings: C
Prior fair value less costs to sell (1 January 20X4) 100 000 (FV) – 9 000 (costs to sell) 91 000
Decrease in value (impairment loss) 4 000

Re-measurement of non-current asset held for sale: decrease in fair value
less costs to sell

4.4 Reversal of classification as ‘held for sale’ (IFRS 5.26 - .29)

If a non-current asset that was previously classified as ‘held for sale’ no longer meets the
criteria necessary for such a classification, the asset must immediately cease to be classified
as ‘held for sale’ and must be re-measured to the lower of:
• its carrying amount had the non-current asset never been classified as ‘held for
sale’(adjusted for any depreciation, amortisation and/ or revaluations that would have
been recognised had the asset not been classified as held for sale); and
• its recoverable amount.

321 Chapter 9


Example 6: re-measurement of assets no longer classified as ‘held for sale’

Plant, with a cost of C100 000 (1 January 20X1) and accumulated depreciation of C20 000 on
31 December 20X2 (10% straight-line for 2 years), was reclassified as ‘held for sale’ on
31 December 20X2 and immediately impaired to its ‘fair value less costs to sell’ of C65 000.
On 30 June 20X3 (six months later), it ceased to meet all criteria necessary for classification
as ‘held for sale’. On this date its recoverable amount is determined to be C85 000.

Required:
Show all journal entries relating to the re-measurement of plant previously held as a ‘non-
current asset held for sale’.

Solution to example 6: re-measurement of assets no longer classified as ‘held for sale’

Workings: C
New carrying amount (30 June 20X3) to be lower of: 75 000
• Carrying amount had the asset never 100 000 – 20 000 – 100 000 x 10% x 6/12 75 000
been classified as ‘held for sale’
• Recoverable amount Given 85 000
Current carrying amount (30 June 20X3) Fair value – costs to sell (65 000)
Impairment loss to be reversed 10 000

Journals: Debit Credit

30 June 20X3
Reversal of impairment loss on reclassification of ‘non-current asset
held for sale’ as ‘property, plant and equipment’: criteria no longer met

Note: Depreciation on this asset will now begin again.

5. Non-current assets held for sale: disclosure (IFRS 5.30 and .38 - .42)

5.1 Overview

Extra disclosure is required where the financial statements include either:
• a ‘non-current asset held for sale’; or
• a ‘sale of a non-current asset’.

The classification affects the period during which it was classified as ‘held for sale’. This
means that no adjustment should be made to the measurement or presentation of the affected
assets in the comparative periods presented.

5.2 In the statement of financial position

Non-current assets (or non-current assets within a disposal group) that are ‘held for sale’ must
be shown separately in the statement of financial position.

If a disposal group includes liabilities, these liabilities must also be shown separately from
other liabilities in the statement of financial position and may not be set-off against the assets
within the disposal group.

322 Chapter 9


5.3 In the statement of financial position or notes thereto

Major classifications of assets within the total of the ‘non-current assets held for sale’ and
major classifications of liabilities within the total ‘liabilities of a disposal group’ must be
shown in the notes (unless shown in the statement of financial position).

5.4 Other note disclosure

An entity shall disclose the following information in the notes in the period in which a non-
current asset (or disposal group) has been 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 IFRS 5 (paragraph 20-22) and, if not
separately presented in the statement of comprehensive income, the caption in the
statement of comprehensive income that includes that gain or loss;
d) if applicable, the segment in which the non-current asset (or disposal group) is presented
in accordance with IAS 14 Segment Reporting.

If, during the current period, there was a decision to reverse the plan to sell the non-current
asset (or disposal group), the following extra disclosure would be required:
a) the description of the facts and circumstances leading to the decision not to sell; and
b) the effect of the decision on the results of operations for all periods presented.

Example 7: disclosure of non-current assets held for sale

Assume that an entity owns only the following non-current assets:
• Plant; and
• Factory buildings.

Details of the plant are as follows:
• Plant was purchased on 1 January 20X1 at a cost of C100 000;
• Depreciation is provided over 10 years to a nil residual value on the straight-line basis;
• Plant was reclassified as ‘held for sale’ on 31 December 20X2 and immediately impaired
to its ‘fair value less costs to sell’ of C65 000;
• On 30 June 20X3 (six months later), plant ceased to meet all criteria necessary for
classification as ‘held for sale’, on which date its recoverable amount is C85 000.

Details of the factory buildings are as follows:
• The factory buildings were purchased on 1 January 20X1 at a cost of C600 000,
• Depreciation is provided over 10 years to nil residual values on the straight-line basis
• Factory buildings were reclassified as ‘held for sale’ on 30 June 20X3’ at a ‘fair value
less cost to sell’ of C445 000.

Required:
Disclose all information necessary in relation to the plant and factory buildings in the
financial statements for the year ended 31 December 20X3.

323 Chapter 9


Solution to example 7: disclosure of non-current assets held for sale

Comment: this example explains how to disclose non-current assets held for sale, as well as how to
disclose a non-current asset that is no longer held for sale.

Company name
Statement of financial position
At 31 December 20X3
20X3 20X2
Non-current assets C C
Property, plant and equipment 26 70 000 480 000
Non-current assets (and disposal groups) held for sale 27 445 000 65 000
Non-current liabilities
Liabilities of a disposal group (for disclosure purposes only) 27 xxx xxx

Company name
Notes to the financial statements
For the year ended 31 December 20X3
20X3 20X2
C C
5. Profit before tax
Profit before tax is stated after taking into consideration the following (income)/ expenses:
Depreciation – factory building 30 000 60 000
Depreciation – plant 5 000 10 000
Impairment loss – asset held for sale 5 000 15 000
Impairment loss reversed – asset no longer held for sale (10 000) 0
26. Property, plant and equipment
Factory building 0 480 000
Plant 70 000 0
70 000 480 000
Factory building:
Net carrying amount – 1 January 480 000 540 000
Gross carrying amount – 1 January 600 000 600 000
Accumulated depreciation and impairment losses – 1 January (120 000) (60 000)
Depreciation (to 30 June 20X5) (30 000) (60 000)
Impairment loss (to fair value less costs to sell: 450 000 – 445 000) (5 000) 0
Non-current asset now classified as ‘held for sale’ (445 000) 0
Net carrying amount – 31 December 0 480 000
Gross carrying amount – 31 December 0 600 000
Accumulated depreciation and impairment losses – 31 December 0 (120 000)
Plant:
Net carrying amount – 1 January 0 90 000
Gross carrying amount – 1 January 0 100 000
Accumulated depreciation and impairment losses – 1 January 0 (10 000)
Non-current asset no longer classified as ‘held for sale’ 65 000 0
Reversal of impairment loss (to lower of HCA: 75 000 or RA:85 000) 10 000 0
Depreciation (20X3: 75 000 / 7,5 remaining years x 6/12) (5 000) (10 000)
Impairment loss (to fair value less costs to sell: 80 000 – 65 000) 0 (15 000)
Non-current asset now classified as ‘held for sale’ 0 (65 000)
Net carrying amount – 31 December 70 000 0
Gross carrying amount – 31 December 100 000 0
Accumulated depreciation and impairment losses – 31 December (30 000) 0

324 Chapter 9


27. Non-current assets held for sale 20X3 20X2
C C
Factory buildings 445 000 0
Plant 0 65 000
Less non-current interest bearing liabilities (disclosure purpose) 0 0
445 000 65 000
The company is transferring its business to a new location and thus the existing factory building is
to be sold (circumstances leading to the decision).
The sale is expected to take place within 7 months of the end of the reporting period (expected
timing). The factory building is expected to be sold as a going concern (expected manner of sale).
The plant is no longer classified as ‘held for sale’ since it is now intended to be redeployed to other
existing factories rather than to be sold together with the factory buildings (reasons for the
decision not to sell).
The effect on current year profit from operations is as follows: C
- Gross (Impairment loss reversed: 10 000 – deprec.:5 000) 5 000
- Tax (1 500)
- Net 3 500

6. Discontinued operations: identification (IAS 5.31 - .36)

IFRS 5 requires that, where a component is identified as a discontinued operation, it must be
separately disclosed in the financial statements. The following definitions are provided in
IFRS 5:

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

A component of an entity may be a cash-generating unit or any group thereof.

A discontinued operation is
• a component of an entity that has either been
- disposed of, or
- is classified as held for sale;
• and meets one of the following criteria:
- represents a separate major line of business or geographical area of operations; or
- 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.

7. Discontinued operations: measurement

A discontinued operation is, in effect, constituted by non-current assets (or disposal groups)
held for sale that, together, comprise a component that meets the definition of a ‘discontinued
operation’. Therefore, the principles that are adopted when measuring the individual non-
current assets (or disposal groups) held for sale are also used when measuring the elements of
a discontinued operation.

If the non-current asset (or disposal group) does not meet the definition of a ‘component’, the
related transactions and adjustments will not be disclosed as ‘discontinued operations’ but
rather as part of ‘continuing operations’.

325 Chapter 9


8. Discontinued operations: disclosure

8.1 In the statement of comprehensive income
A single amount must be presented on the face of the statement of comprehensive income
being the total of:
• the post-tax profit or loss of the discontinued operations;
• the post-tax gain or loss recognised on measurement to fair value less costs to sell; and
• the post-tax gain or loss recognised on disposal of assets/ disposal groups making up the
discontinued operations.
An analysis of this single amount that is presented in the statement of comprehensive income
must be presented ‘for all periods presented’. This analysis may be done in the statement of
comprehensive income (see suggested presentation option A on the next page) or in the notes
(see suggested presentation option B on the next page) and must show the following:
• revenue of discontinued operations;
• expenses of discontinued operations;
• profit (or loss) before tax of discontinued operations; and
• tax expense of discontinued operations.
An entity must also disclose the following either in the statement of comprehensive income or
in the notes thereto ‘for all periods presented’ (with the exception of the change in estimate):
• gain or loss on re-measurement to ‘fair value less selling costs’;
• gain or loss on disposal of the discontinued operation (made up by assets/ disposal
groups);
• tax effects of the above; and
• changes to estimates made in respect of discontinued operations disposed of in a prior
period (showing nature and amount); examples of such changes include outcomes of
previous uncertainties relating to:
- the disposal transaction (e.g. adjustments to the selling price); and
- the operations of the component before its disposal (e.g. adjustments to warranty/
legal obligations retained by the entity).
Option A: If the analysis of the profit or loss is presented on the face of the statement of
comprehensive income, the statement of comprehensive income will look something like this
(the figures are all assumed):

Example Ltd
Statement of comprehensive income
For the year ended 31 December 20X3 (extracts)
20X3 20X3 20X3 20X2 20X2 20X2
C’000 C’000 C’000 C’000 C’000 C’000
Continuing Discontinued Total Continuing Discontinued Total
Revenue 800 150 800 790
Expenses (300) (100) (400) (500)
Profit before tax 500 50 400 290
Taxation expense (150) (60) (180) (97)
Gains/ (losses) after tax 40 7
Gain/ (loss): re-measurement 30 10
to fair value less costs to sell
Gain/ (loss): disposal of assets 20 0
in the discontinued operations
Tax on gains/ (losses) (10) (3)

Profit for the period 350 30 380 220 200 420
Other comprehensive income 0 0 0 0 0 0
Total comprehensive income 350 30 380 220 200 420

326 Chapter 9


Option B: If the total profit or loss is presented in the statement of comprehensive income,
with the analysis in the notes, the statement of comprehensive income and notes will look
something like this (the figures are all assumed):

Example Ltd
20X3 20X2
Note C’000 C’000
Revenue 800 800
Expenses (300) (400)
Taxation expense (150) (180)
Profit from continuing operations 350 220
Profit from discontinued operations 4&5 30 200
Profit for the period 380 420
Other comprehensive income 0 0
Total comprehensive income 380 420

Example Ltd
20X3 20X2
4. Discontinued operation: analysis of profit C’000 C’000
The profit from discontinued operations is analysed as follows:
• Revenue 150 790
• Expenses (100) (500)
• Profit before tax 50 290
• Tax (60) (97)
• Gains/ (losses) after tax 40 7
• Gain/ (loss on re-measurement to fair value less costs to sell 30 10
• Gain/ (loss) on disposal of assets in the/ the discontinued 20 0
operations
• Tax on gains/ (losses) (10) (3)
• Profit for the period 30 200

8.2 In the statement of cash flows

In respect of discontinued operations, an entity shall disclose the following either on the face
of the statement of cash flows or in the notes thereto ‘for all periods presented’ [para 33(c)]:
• net cash flows from operating activities;
• net cash flows from investing activities; and
• net cash flows from financing activities.

Example Ltd
Notes to the statement of cash flows
20X3 20X2
4. Discontinued operation C’000 C’000
Included in the statement of cash flows are the following net cash flows resulting from a
discontinued operation:
Net cash flows from operating activities (assumed figures) 5 6
Net cash flows from investing activities (assumed figures) 0 1
Net cash flows from financing activities (assumed figures) (8) (4)
Net cash outflows (assumed figures) (3) 3

327 Chapter 9


8.3 Other note disclosure

8.3.1 Components no longer held for sale (IFRS 5.37)

Where the component is no longer ‘held for sale’, the amounts previously disclosed as
‘discontinued operations’ in the prior periods must be reclassified and included in ‘continuing
operations’. This will facilitate better comparability.

See the examples of disclosure provided in 8.1 and assume that the discontinued operation
was first classified as such in 20X2, but that during 20X3 the criteria for classification as
‘discontinued’ were no longer met. Notice that the 20X2 figures shown below, whereas
previously split into ‘continuing’, ‘discontinuing’ and ‘total’ (in 8.1) are now restated in one
column. Although IFRS 5 does not require it, it is suggested that a note be included
explaining to the user that a previously classified ‘discontinued operation’ has been
reabsorbed into the figures representing the ‘continuing operations’ of the entity, thus
explaining the re-presentation of the 20X2 figures.

Example Ltd
20X3 20X2
C’000 C’000
Restated
Revenue 1 000 1 600
Expenses (400) (900)
Tax expense (220) (280)
Profit for the period 380 420
Other comprehensive income 0 0
Total comprehensive income 380 420

The above amounts are assumed amounts: notice how they tie up with the previous explanatory
examples in Option A and Option B.

8.3.2 Criteria met after the end of the reporting period (IAS 5.12)

If the criteria for separate classification and measurement as ‘held for sale’ are met during the
post-reporting date period, no adjustments should be made to the amounts and no
reclassification of the assets as ‘held for sale’ should take place. This is treated as a non-
adjusting event with the following disclosure being necessary:
• a description of the non-current asset (or disposal group);
• a description of the facts and circumstances leading to the expected disposal;
• the expected manner and timing of the disposal; and
• the segment (if applicable) in which the non-current asset (or disposal group) is presented.

The note disclosure of an event after the reporting period might look like this:

Example Ltd

4. Events after the reporting period

On 15 February 20X4, the board of directors decided to dispose of the shoe division following
severe losses incurred by it during the past 2 years. The division is expected to continue operations
until 30 April 20X4, after which its assets will be sold on a piecemeal basis. The entire disposal of
the division is expected to be completed by 31 August 20X4.

328 Chapter 9


9. Summary

IFRS 5

Non-current assets Discontinued
held for sale operations

Non-current assets held for sale

Identification

General If asset not expected Assets acquired with
to be sold within 1 yr intention to sell
Normal 6 criteria 3 scenarios and 2 criteria
related criteria

Measurement

Cost model Revaluation model Assets acquired with
intention to sell
Initially: Initially: Initially:

at cost at cost Lower of CA (cost) and
FV – costs to sell
Subsequently: Subsequently:

Before reclassification: Before reclassification:
Depreciate and impair Depreciate; revalue and
impair

When reclassifying: When reclassifying:
Remeasure on Remeasure on revaluation
cost model model

Adjust to lower of CA or Adjust to lower of CA or FV
FV – CtS – CtS

Stop depreciating Stop depreciating

Transfer to NCAHforS Transfer to NCAHforS

Remeasure to latest FV – Remeasure to latest FV –
CtS CtS
(reversals of IL limited (reversals of IL limited to
to accumulated IL’s) accumulated IL’s)

329 Chapter 9


Non-current assets held for sale

No longer held for sale

Transfer back to PPE Remeasure to lower of:
• CA (had asset never been classified
as NCAHforS); and
• RA
Resume depreciation

Discontinued operations

Identification Measurement Disclosure

A component that has Same as for non- Statement of
been disposed of or is current assets held comprehensive income:
classified as held for for sale Face:
sale and is: Total profit or loss from
• Separate major line discontinued operations
or area Notes or on the face:;
• Part of a single Analysis of total profit
disposal plan or Gain or loss on re-
• Is a subsidiary measurement
acquired to sell Gain or loss on disposal of
assets
Tax effects of above
Changes in estimates
Statement of cash flows:
(face or notes)
Operating activities
Investing activities
Financing activities
Other notes:
Components no longer held
for sale
Criteria met after the end
of the reporting period

330 Chapter 9

Chapter9 noncurrentassetsheldforsale2008

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