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Chapter 36
NONCURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (IFRS 5)
BACKGROUND AND SCOPE
The purpose of IFRS 5 is to specify the accounting for assets held for sale and the presentation and disclosure of discontinued operations.
IFRS 5 was issued by the IASB in 2004 and replaced IAS 35, Discontinued Operations, which was issued by the International Accounting Standards Committee
(IASC), the IASB’s predecessor.
IFRS 5 and its accompanying documents have been amended by the following IFRS:
IFRS 8 (issued November 2006), IAS 1 (as revised in 2007), IFRS 3 (as revised in 2008), IAS 27 (as amended in 2008), “Improvements to IFRS 2008” (issued in
2008), IFRIC 17 (issued in 2008), “Improvements to IFRS 2009”(issued in 2009), and IFRS 9 (issued in 2009).
The measurement provisions of this International Financial Reporting Standard (IFRS) do not apply to deferred tax assets, assets arising from employee benefits,
financial assets within the scope of IAS 39, noncurrent assets accounted for in accordance with the fair value model in IAS 40, noncurrent assets that are measured at
fair value less estimated point-of-sale costs under IAS 41, and contractual rights under insurance contracts as defined in IFRS 4.
The IASB’s Annual Improvements Project, “Improvements to IFRS 2009,” added paragraphs 5B and 44E to IFRS 5. These amendments to IFRS 5 clarify that
IFRS 5 prescribes disclosure requirements in respect of noncurrent assets (or disposal groups) classified as held for sale or discontinued operations and disclosures in
other IFRS do not apply to such assets (or disposal groups) unless those IFRS require specific disclosures in respect of noncurrent assets (or disposal groups) classified
as held for sale or discontinued operations or disclosures about the measurement of assets and liabilities within the disposal group that are not within the scope of the
measurement requirements of IFRS 5 and such disclosures are not already provided in other notes to the financial statements. These amendments are to be applied
prospectively for annual periods beginning on or after January 1, 2010 (earlier application is permitted with disclosure).
(in accordance with IFRS 5)
DEFINITIONS OF KEY TERMS
Held for sale. The carrying amount of a noncurrent asset will be recovered mainly through selling the asset rather than through usage.
Disposal group. A group of assets and possibly some liabilities that an entity intends to dispose of in a single transaction.
For a noncurrent asset or disposal group to be classified as held for sale, the asset must be available for immediate sale in its present condition and its sale must be
highly probable. In addition, the asset must be currently being marketed actively at a price that is reasonable in relation to its current fair value.
The sale should be completed, or expected to be so, within a year from the date of the classification.
The actions required to complete the planned sale will have been made, and it is unlikely that the plan will be significantly changed or withdrawn.
For the sale to be highly probable, management must be committed to selling the asset and must be actively looking for a buyer.
It is possible that the sale may not be completed within one year.
In this case, the asset could still be classified as held for sale if the delay is caused by events beyond the entity’s control and the entity is still committed to selling the
asset.
Facts
CASE STUDY 1
An entity is committed to a plan to sell a building and has started looking for a buyer for that building. The entity will continue to use the building until
another building is completed to house the office staff located in the building. There is no intention to relocate the office staff until the new building is
completed.
Required
Would the building be classified as held for sale?
Solution
The building will not be classified as held for sale as it is not available for immediate sale.