Advisory Services
Audit
Consulting
ESG Advisory
RBI Registration
SEBI Registration
IRDA Registration
FEMA Advisory
Compliances
IBC Services
VCFO Services
Growing
Developing
ME-1
ME-2
EU-1
EU-2
SE
Others
Select Your Location
Non-current assets held for sale are subject to IFRS 5. Such assets occur when companies decide to stop specific operations or sell assets that were not previously considered current assets. Once assets are declared as not being held for continuous use, they cannot be correctly categorized as property, plant, and equipment, or any other acceptable categorization. Accounting for such assets was originally mandated under IAS 35. IAS 35 has been superseded by this Standard (IFRS 5).
Table of Contents
A non-current asset might be held as a standalone asset or as part of a “disposal group” for disposal. The accounting standard classifies such assets as “held for sale”. These non-current assets held for sale are valued at the lower of cost or fair value, and they are not subject to depreciation. Further, these assets are listed separately in the financial statements.
It is possible to sell single assets or “disposal groups.” A disposal group is a collection of assets that will be sold or otherwise disposed of as a group in a single transaction, as well as the liabilities that are directly related to the assets, will be transferred. Disposal groups are commonly used to describe corporate divisions. The distinction between single assets and disposal groups is that in the latter, the group’s assets and liabilities are valued collectively in order to calculate their carrying values.
It’s worth noting that there’s a distinction made between continuing operations and discontinued operations within the definition of held-for-sale assets.
Only non-current assets are covered by the IFRS. Because current assets are intended for disposal as part of the entity’s operating cycle, the question of whether or not to apply this Standard to them does not originate. If the cash flows from a non-current asset are to come through its disposal rather than continuing use, the asset will be subject to this Standard and considered as “held for sale”.
The Accounting Standard does not cover the sale of deferred tax assets[1] [given under IAS 12], assets arising out of employee benefit plans [given under IAS 19], financial assets [given under IAS 39], investment property valued under the revaluation model [given under IAS 40], agricultural assets at fair value less cost to sell [given under IAS 41], and assets under insurance contracts [given under IFRS 4]. Such assets, even when they constitute to be a part of a disposal group, are to be valued according to the relevant IFRSs.
When a corporation (or another entity) intends to sell an asset and/or discontinue a portion of its operations, it may have an impact on its future cash flows, profitability, and overall financial status. As a result, readers of financial statements, particularly investors, should be kept up to date on these developments.
This is the reason as to why the IFRS 5 on Non-Current Assets Held for Sale & Discontinued Operations was developed – to emphasize and differentiate the results of discontinued operations from the results of ongoing or continuing activities.
IFRS 5 emphasizes two major sections. It establishes the accounting approach for assets (or disposal groups) that are held for sale. Secondly, it establishes the requirements for discontinued operations in terms of presentation and disclosure.
A non-current asset (or a disposal group) must be classified by a company as held for sale if the carrying value will be recovered primarily through a sale transaction rather than through continued use.
For this to be true, the asset (or a disposal group) should be immediately available for disposal in its current condition, subject only to parameters that are ordinary and typical for sales of such assets (or disposal groups), and its sale must be very likely. To make the sale very likely, the relevant level of the company’s management should be committed towards a strategy to sell the asset (or disposal group), and an active programme to find a buyer and execute the plan must have been launched. Furthermore, the asset (or the disposal group) must be aggressively offered for sale at an acceptable price in comparison to its present fair value. Furthermore, except as indicated by some exceptions, the sale should be intended to meet the criteria for recognition as a complete sale within one year of its classification, and the steps required to complete the plan should suggest that any significant changes to the plan or withdrawal of the plan are unlikely.
The basic idea is that assets or disposal groups that are kept for sale shall be carried in books at their carrying value or fair value (lower of the two), minus selling costs. Assets might also be held for the purpose of distribution to owners, in which case they would be carried at their carrying value or fair value, minus distribution costs.
If the selling expenses for non-current assets are expected to be paid more than a year from now, the costs will be present valued.
Assets that are held for sale are not depreciated, but they are subject to an impairment charge. It’s possible that the fair value of assets held for sale will rise in subsequent measurements. Only the extent of impairment loss recorded under this Standard or IAS 36 will be recognized as gain on the fair value of held for sale assets. When the assets held for sale are eventually de-recognized (for example, on sale), any gain or loss that has not yet been booked must be brought to books.
If the plan for disposal fails to be viable, a held-for-sale asset may be reclassified out of the held-for-sale category. In this scenario, the non-current asset must be valued at the lowest of the following:
A discontinued operation is defined under the IFRS as a component of an enterprise that has been either disposed of or has been categorized as held for sale, and it denotes a distinguished major line of business/geographical area of operations. It may be a part of a coordinated plan/scheme to dispose of a distinguished major line of business/geographical area of activities or, might be a subsidiary that is purchased especially with a view to resell.
Operations and cash flows that can be readily differentiated from the rest of the entity, both operationally and for financial reporting purposes, make up a component of an entity. In other words, while being held for use, a component of an entity will have been a cash-generating unit or a set of cash-generating units.
A non-current asset (or may be a disposal group) that is to be abandoned must not be classified as held for sale by an entity. This is owing to the fact that the majority of its carrying value shall be recovered through continued use.
Discontinued operations are separated because they require separate disclosure in the statement of comprehensive income. Gains and losses from held-for-sale assets that are part of ongoing activities must be shown separately in the profit/loss from ongoing operations. Moreover, the net cash flows attributable to a discontinued operation’s operating, investment, and financing activities are provided individually on the face of the cash flow statement or stated in the notes.
According to IFRS 5, assets (or disposal groups) held for sale must make the following disclosures:
In essence, assets (or disposal groups) that are held for sale are not subject to depreciation, and they are quantified at the lower of carrying value and fair value minus costs to sell. Moreover, such assets are separately disclosed in the balance sheet or statement of financial position. Separate disclosures are also needed by an entity for its discontinued operations and disposals of non-current assets.
Read our Article:Accounting for Business Combinations under IFRS 3
A CA together with MBA (Fin) and M Com, she relishes taking interest in insightful writing in the domain of taxation and finance. She has gained experience as a full-time author and has also served an accounting role in industry.
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Every assessee in India is obligated to file an income tax return and make the timely payment o...
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
The Securities and Exchange Board of India (SEBI), the capital markets regulator, has recommend...
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Infrastructure and real estate have been regarded as India's "sunshine sector" since the turn o...
On 22nd May 2023, the Central Board of Direct Taxes (CBDT)[1] issued a new circular under secti...
Are you human?: 4 + 7 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
Today financial reporting services are needed by all organizations. Every organization is needed to know its perfor...
07 Jan, 2021
Financial Investment and Corporate Compliances Raising investment is an important part of the modern enterprise. Bu...
23 Jun, 2018
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!