{"id":56129,"date":"2022-03-02T10:52:26","date_gmt":"2022-03-02T05:22:26","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=56129"},"modified":"2022-03-02T10:52:28","modified_gmt":"2022-03-02T05:22:28","slug":"the-treatment-of-non-current-assets-that-are-held-for-sale-under-ifrs","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/the-treatment-of-non-current-assets-that-are-held-for-sale-under-ifrs\/","title":{"rendered":"The treatment of Non-Current Assets that are Held for Sale under IFRS"},"content":{"rendered":"

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<\/a>, plant, and equipment, or any other acceptable categorization. Accounting<\/a> for such assets was originally mandated under IAS 35. IAS 35 has been superseded by this Standard (IFRS 5).<\/p>\n\n\n\n

Held for sale assets<\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

It’s worth noting that there’s a distinction made between continuing operations and discontinued operations within the definition of held-for-sale assets.<\/p>\n\n\n\n

Applicability of IFRS 5<\/h2>\n\n\n\n

Only non-current assets are covered by the IFRS<\/strong><\/a>. 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”.<\/p>\n\n\n\n

The Accounting Standard does not cover the sale of deferred tax assets[1]<\/a><\/sup><\/strong> [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<\/a> 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.<\/p>\n\n\n\n

The objective of IFRS 5<\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Recognition and measurement<\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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:<\/p>\n\n\n\n