IFRS5

Level1 Level 2 Optional

Definition Y
Measurement Y
Presenting discontinued operations Y
Definition
IFRS 5 is the result of a short-term convergence project
with the US Financial Accounting Standards Board
(FASB). It replaced IAS 35 Discontinuing operations.
IFRS 5 requires assets and groups of assets that are 'held for sale' to
be presented separately of financial position and the results of
discontinued operations to be presented separately in the statement
of profit or loss and other comprehensive income. This is required
so that users of financial statements will be better able to make
projections about the financial position, profits and cash flows of
the entity.
 Disposal group.

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. (In practice a disposal group could
be a subsidiary, a cash-generating unit or a single operation
within an entity.)
 Classification of assets held for sale

A non-current asset (or disposal group) should be classified as

held for sale if its carrying amount will be recovered principally
through a sale transaction rather than through continuing use.
A number of detailed criteria must be met:
a) The asset must be available for immediate sale in its present
condition.
b) Its sale must be highly probable (ie significantly more likely
than not).
For the sale to be highly probable, the following must apply:
a) Management must be committed to a plan to sell the asset.
b) There must be an active programme to locate a buyer.
c) The asset must be marketed for sale at a price that is
reasonable in relation to its current fair value.
d) The sale should be expected to take place within one year
from the date of classification.
e) It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn.
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Measurement
 Measurement of assets held for sale

A non-current asset (or disposal group) that is held for sale

should be measured at the lower of its carrying amount
and fair value less costs of disposal. Fair value less costs of
disposal is equivalent to net realisable value. An impairment
loss should be recognised where fair value less costs of
disposal is lower than carrying amount.
Non-current assets held for sale should not be depreciated,
even if they are still being used by the entity. However, any
impairment (arising for instance from an increase in costs of
disposal) is recognised and charged to profit or loss.
 Exercise

On 1 October 2012, Atlas terminated the production of one of

its product lines. From this date, the plant used to manufacture
the product has been actively marketed at an advertised price of
$4·2 million which is considered realistic. It is included in the
trial balance at a cost of $9 million with accumulated
depreciation (at 1 April 2012) of $5 million.
Plant and equipment is depreciated at 20% per annum using the
reducing balance method and time apportioned as appropriate.
 Solution

DR NCA-HFS 3,600
CR PPE 3,600
 Exercise
Minny intends to dispose of a major line of the parent’s business
operations. It is anticipated that Minny will realise $30 million for
the business. At the date the held for sale criteria were met, the
carrying amount of the assets and liabilities comprising the line of
business were:
$m
Property, plant and equipment (PPE) 49
Inventory 18
Current liabilities 3
Solution
 Presentation of a non-current asset or disposal group
classified as held for sale
Non-current assets and disposal groups classified as held
for sale should be presented separately from other assets
in the statement of financial position. The liabilities of a
disposal group should be presented separately from other
liabilities in the statement of financial position
a) Assets and liabilities held for sale should not be
offset.
b) IFRS 5 requires non-current assets or disposal groups
held for sale to be shown as a separate component of
current assets/current liabilities.
For example (taken from standard):
ASSETS
Non-current assets
AAA X
Current assets
BBB X
CCC X
X
Non-current assets classified as held for sale X
X
Total assets X
EQUITY AND LIABILITIES
Equity
DDD X
Non-current liabilities
EEE X
Current liabilities
FFF X
GGG X
Liabilities directly associated with non-current assets classified X
as held for sale
X
Total equity and liabilities X
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Presenting discontinued operations
 Discontinued operation.
Discontinued operation. A component of an entity that has either
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 a 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.
 Discontinued operation
XYZ GROUP
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31
DECEMBER 20X2
20X2 20X1
Continuing operations $'000 $'000
Revenue X X
Cost of sales (X) (X)
Gross profit X X
Other income X X
Distribution costs (X) (X)
Administrative expenses (X) (X)
Other expenses (X) (X)
 20X2 20X1
Continuing operations $'000 $'000
Finance costs (X) (X)
Share of profit of associates X X
Profit before tax X X
Income tax expense (X) (X)
Profit for the year from continuing operations X X
Discontinued operations
Profit for the year from discontinued operations X X
Profit for the year X X
Profit attributable to:
Owners of the parent X X
Non-controlling interest X X
X X
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OT1
 B208 IFRS5
For an asset to be classified as 'held for sale' under IFRS 5 Non-current
assets held for sale and discontinued operations its sale must be 'highly
probable'. Which one of the following is not a requirement if the sale
is to be regarded as highly probable?
A. Management must be committed to a plan to sell the asset.
B. A buyer must have been located for the asset.
C. The asset must be marketed at a reasonable price.
D. The sale should be expected to take place within one year from the
date of classification. (2 marks)
 B208
Answer B
It is not necessary for a buyer to have been located for the asset.
 B209 IFRS5
At what amount should an asset classified as 'held for sale' be
measured?
A. Lower of carrying amount and fair value less costs of disposal
B. Lower of carrying amount and value in use
C. Higher of value in use and fair value less costs of disposal
D. Higher of carrying amount and recoverable amount (2 marks)
 B209
Answer A
Lower of carrying amount and fair value less costs of disposal. As the
assets are to be sold, value in use is not relevant and recoverable
amount will be fair value less costs of disposal.
 B212 IFRS5
As at 30 September 20X3 Dune's property in its statement of financial
position was:
Property at cost (useful life 15 years) $45 million
Accumulated depreciation $6 million
On 1 April 20X4 Dune decided to sell the property. The property is
being marketed by a property agent at a price of $42 million, which was
considered a reasonably achievable price at that date. The expected
costs to sell have been agreed at $1 million. Recent market transactions
suggest that actual selling prices achieved for this type of property in
the current market conditions are 10% less than the price at which they
are marketed.
At 30 September 20X4 the property has not been sold.
 B212
At what amount should the property be reported in Dune's
statement of financial position as at 30 September 20X4?
$36 million
$37.5 million
$36.8 million
$42 million (2 marks)
 B212
Answer $36.8 million
Selling price × 90% minus selling costs.