IFRS 5
NON-CURRENT ASSETS HELD
FOR SALE
FINACC 379
TERM 4
Alexandra Shtein
,BACKGROUND
Non-current assets Longer than 12 months (long-term) Land & Buildings
◦ Eg: hold to generate revenue
◦
Current assets Less than 12 months (short-term) Inventory
◦ Quick “turn-around” time Debtors
◦ Sell quickly
◦ Convert to cash
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (IFRS 5)
à IFRS 5 “governs” how to treat a non-current asset held for sale / a discontinued operation in the financial statements.
Objective:
Accounting treatment for non-current assets held for sale and
Presentation and disclosure of discontinued operations
Scope:
Classification and presentation:
• All non-current assets and disposal groups
• Disposal groups must contain at least 1 non-current asset
Example:
DISPOSAL GROUP?
◦ Inventory ◦ PPE
◦ Debtors ◦ Inventory
◦ Creditors ◦ Debtors
◦ Creditors
This is NOT a disposal group as it does not This CAN BE a disposal group as it includes a
include a non-current asset non-current asset
Measurement requirements:
• All non-current assets, except par. 5
§ (IAS 12 Deferred tax; IAS 19 Employee benefits, IFRS 9 Financial instruments,
§ IAS 40 Investment property, IAS 41 Agriculture and IFRS 17 Insurance contracts) (NB: if at fair value model)
• All non-current assets held for sale must be measured in accordance with the requirements of IFRS 5:
• There are however certain assets that will be classified as held for sale, BUT not measured in terms of IFRS 5 (ie. outside measurement
scope of IFRS 5).
• These “exception” assets must be measured as you would usually measure it in terms of their applicable standards.
- Deferred tax assets and liabilities – measured in terms of the requirements of IAS 12
- Financial instruments – measured in terms of the requirements of IFRS 9
- Investment property (@ FV MODEL) – measured in terms of the requirements of IAS 40
NB: Investment property measured in accordance with the cost model, will therefore fall under the measurement scope of IFRS 5.
,NON-CURRENT ASSETS HELD FOR SALE – “SINGLE”
CLASSIFICATION Important for discussion
questions
3 requirements:
1 Non-current assets of which carrying amounts are primarily recovered from sale rather than continued use (.06)
è Purpose of non-current asset must be to sell it, rather than to keep it for continued use
2 Non-current asset must: (read “as is”)
è Be available for immediate sale (entity has intention an ability to transfer asset to buyer in its present condition) subject only to
terms that are usual and customary for sales of such assets, and
3 Sale must be highly probable (.08) (5 requirements)
Sale is highly probable if: (.08)
5 requirements:
All must be met:
1. Appropriate level of management is committed to sales plan eg: directors
2. Active program to find buyer and to complete the plan must have commenced à eg: active task team appointed
or actively working to locate a
buyer
3. Asset must be actively marketed at price that is reasonable in comparison with its current à eg: advertised at FV
fair market value
4. Sale must be completed within one year after date of classification as held for sale (except
at par. 9)
5. Actions to complete the plan indicates that it is unlikely that significant changes will be à accept if no other reason to
made to the plan or that the plan will be withdrawn believe otherwise
The probability that shareholders will give approval (if required) must be considered in the review of whether the sale is highly
probable.
Sale to still be highly probable, even though the sale is not completed within one year.
Time to sell longer than 1 year – not preclude as non-current asset held for sale, if: (.09)
2 requirements
1 Delay is caused by events outside of the entity’s control, and
2 There is proof that the entity is still committed to the sale.
ie. if these requirements are met, can still recognise as non-current asset held for sale
(Even though sale not within 1 year)
Eg: Board has made a confirmed decision for the sale but it has been delayed due to COVID for more than a year
• Sales transaction includes an exchange of non-current asset for another non-current asset if the transaction has commercial substance in
terms of IAS 16 Property, Plant & Equipment. (.10)
• Non-current asset that will be abandoned: continue to depreciate until abandoned; do not reclassify.
• Temporarily out of use: remember that ito IAS 16 Property, Plant and Equipment, depreciation is accounted for as soon as an asset is
available for use – therefore, if an asset is just temporarily out of use (e.g. scheduled maintenance), we do not cease depreciation.
Such an asset is also not reclassified.
, As soon as a non-current asset meets the criteria (.06 -.08) reclassify as non-current asset held for sale (.03)
STATEMENT OF FINANCIAL POSITION
CURRENT ASSETS
Non-current asset held for sale Separate line item
Non-current assets which meet the criteria as held for sale:
• Shown separately on Statement of financial position as a current asset
UNLESS: it is IAS 12 Deferred Tax, IAS 40 Investment Property
• Measured at LOWER of carrying amount and fair value less cost to sell à
or IFRS 9 Financial Instruments (measured in own standard
even though can be re-classified)
• If it is an IAS 16 asset then from re-classification date = depreciation ceases
EXAMPLE:
The vehicle is a non-current asset.
• Assume the vehicle meets the requirements of par.06-08 of IFRS 5 to be classified as held for sale
1 Re-classify from non-current assets to current assets.
- show as a separate line item under current assets on statement of financial position (non-current asset held for sale)
2 Measurement:
- lower of carrying amount and fair value less cost to sell
From the date of reclassification & no further depreciation recognised.
Non-current asset acquired for sale, classify as held for sale only (.11):
The asset was purchased with the intention to sell it (ie. and not to use it in the business)
• Meets the ‘sell within 1 year’ requirement on acquisition date, and
• It is highly probable that the requirements of par .07 and .08 (which are not met) will be met within 3 months.
Immediately available Highly probable
Please note: If only meets the requirement after reporting period (.12)
• Non-adjusting event (IAS 10 Events after the reporting period)
• If meets the criteria before authorisation for issuing of financial statements, disclose:
- information required by par 41 (a), (b) and (d) in the notes
(description, facts and circumstances and the reportable segment to which belongs)
NON-CURRENT ASSETS HELD
FOR SALE
FINACC 379
TERM 4
Alexandra Shtein
,BACKGROUND
Non-current assets Longer than 12 months (long-term) Land & Buildings
◦ Eg: hold to generate revenue
◦
Current assets Less than 12 months (short-term) Inventory
◦ Quick “turn-around” time Debtors
◦ Sell quickly
◦ Convert to cash
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (IFRS 5)
à IFRS 5 “governs” how to treat a non-current asset held for sale / a discontinued operation in the financial statements.
Objective:
Accounting treatment for non-current assets held for sale and
Presentation and disclosure of discontinued operations
Scope:
Classification and presentation:
• All non-current assets and disposal groups
• Disposal groups must contain at least 1 non-current asset
Example:
DISPOSAL GROUP?
◦ Inventory ◦ PPE
◦ Debtors ◦ Inventory
◦ Creditors ◦ Debtors
◦ Creditors
This is NOT a disposal group as it does not This CAN BE a disposal group as it includes a
include a non-current asset non-current asset
Measurement requirements:
• All non-current assets, except par. 5
§ (IAS 12 Deferred tax; IAS 19 Employee benefits, IFRS 9 Financial instruments,
§ IAS 40 Investment property, IAS 41 Agriculture and IFRS 17 Insurance contracts) (NB: if at fair value model)
• All non-current assets held for sale must be measured in accordance with the requirements of IFRS 5:
• There are however certain assets that will be classified as held for sale, BUT not measured in terms of IFRS 5 (ie. outside measurement
scope of IFRS 5).
• These “exception” assets must be measured as you would usually measure it in terms of their applicable standards.
- Deferred tax assets and liabilities – measured in terms of the requirements of IAS 12
- Financial instruments – measured in terms of the requirements of IFRS 9
- Investment property (@ FV MODEL) – measured in terms of the requirements of IAS 40
NB: Investment property measured in accordance with the cost model, will therefore fall under the measurement scope of IFRS 5.
,NON-CURRENT ASSETS HELD FOR SALE – “SINGLE”
CLASSIFICATION Important for discussion
questions
3 requirements:
1 Non-current assets of which carrying amounts are primarily recovered from sale rather than continued use (.06)
è Purpose of non-current asset must be to sell it, rather than to keep it for continued use
2 Non-current asset must: (read “as is”)
è Be available for immediate sale (entity has intention an ability to transfer asset to buyer in its present condition) subject only to
terms that are usual and customary for sales of such assets, and
3 Sale must be highly probable (.08) (5 requirements)
Sale is highly probable if: (.08)
5 requirements:
All must be met:
1. Appropriate level of management is committed to sales plan eg: directors
2. Active program to find buyer and to complete the plan must have commenced à eg: active task team appointed
or actively working to locate a
buyer
3. Asset must be actively marketed at price that is reasonable in comparison with its current à eg: advertised at FV
fair market value
4. Sale must be completed within one year after date of classification as held for sale (except
at par. 9)
5. Actions to complete the plan indicates that it is unlikely that significant changes will be à accept if no other reason to
made to the plan or that the plan will be withdrawn believe otherwise
The probability that shareholders will give approval (if required) must be considered in the review of whether the sale is highly
probable.
Sale to still be highly probable, even though the sale is not completed within one year.
Time to sell longer than 1 year – not preclude as non-current asset held for sale, if: (.09)
2 requirements
1 Delay is caused by events outside of the entity’s control, and
2 There is proof that the entity is still committed to the sale.
ie. if these requirements are met, can still recognise as non-current asset held for sale
(Even though sale not within 1 year)
Eg: Board has made a confirmed decision for the sale but it has been delayed due to COVID for more than a year
• Sales transaction includes an exchange of non-current asset for another non-current asset if the transaction has commercial substance in
terms of IAS 16 Property, Plant & Equipment. (.10)
• Non-current asset that will be abandoned: continue to depreciate until abandoned; do not reclassify.
• Temporarily out of use: remember that ito IAS 16 Property, Plant and Equipment, depreciation is accounted for as soon as an asset is
available for use – therefore, if an asset is just temporarily out of use (e.g. scheduled maintenance), we do not cease depreciation.
Such an asset is also not reclassified.
, As soon as a non-current asset meets the criteria (.06 -.08) reclassify as non-current asset held for sale (.03)
STATEMENT OF FINANCIAL POSITION
CURRENT ASSETS
Non-current asset held for sale Separate line item
Non-current assets which meet the criteria as held for sale:
• Shown separately on Statement of financial position as a current asset
UNLESS: it is IAS 12 Deferred Tax, IAS 40 Investment Property
• Measured at LOWER of carrying amount and fair value less cost to sell à
or IFRS 9 Financial Instruments (measured in own standard
even though can be re-classified)
• If it is an IAS 16 asset then from re-classification date = depreciation ceases
EXAMPLE:
The vehicle is a non-current asset.
• Assume the vehicle meets the requirements of par.06-08 of IFRS 5 to be classified as held for sale
1 Re-classify from non-current assets to current assets.
- show as a separate line item under current assets on statement of financial position (non-current asset held for sale)
2 Measurement:
- lower of carrying amount and fair value less cost to sell
From the date of reclassification & no further depreciation recognised.
Non-current asset acquired for sale, classify as held for sale only (.11):
The asset was purchased with the intention to sell it (ie. and not to use it in the business)
• Meets the ‘sell within 1 year’ requirement on acquisition date, and
• It is highly probable that the requirements of par .07 and .08 (which are not met) will be met within 3 months.
Immediately available Highly probable
Please note: If only meets the requirement after reporting period (.12)
• Non-adjusting event (IAS 10 Events after the reporting period)
• If meets the criteria before authorisation for issuing of financial statements, disclose:
- information required by par 41 (a), (b) and (d) in the notes
(description, facts and circumstances and the reportable segment to which belongs)
