UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT

ACADEMIC YEAR 2019/2020
JAN 2020 TRIMESTER
BACHELOR OF ACCOUNTING (HONS)
TUTORIAL 1 ANSWERS
MFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED
OPERATIONS
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Lazar and Huang
Chapter 6
Questions 1, 2, 4 and 6

1
The operating lease assets will not qualify as held for sale at 31 December x5 as the
company has not made a decision as to whether they should be sold or leased. They
should, therefore, be shown as non-current assets and depreciated. The carrying value of
the assets will be RM20 million. The assets are not impaired because there is no
indicators showing that impairment arise.

2
The plant would not be classified as held for sale at 31 March x6 even though the plant
was sold at auction prior to the date that the financial statements were signed/ authorized
to issued (30/06/x6). The held for sale criteria were not met at the reporting date (31
March, x6). MFRS 5 prohibits the classification of non-current assets as held for sale if
the criteria are met after the reporting date and before the financial statements are signed.
The company should disclose relevant information in the financial statements for the year
ended 31 March x6. The plant is would be depreciated up to its sale.

The plant should also be tested for impairment at 31 March x6 as there are indications of
impairment e.g. plant ceased to be used due to economic downturn.

1
4
To be classified as ‘held for sale’ the asset must be available for immediate sale in its
present condition, subject to the usual selling terms and the sale must be highly probable.
As 31.12.x4 the asset was not available for sale.

MFRS 5 also requires the asset to be disclosed at the lower of carrying amount and fair
value less cost to sell. The company used selling price which is incorrect.

Proper accounting treatment: record as a non-current asset (PPE) at cost and depreciate
and reduce retained earnings by the profit recognised (RM14 million) by classifying the
asset at selling price.

6
Decision to sell Tag was made before the year end and there was a commitment to sell it.
Conditions exist to allow Tag be classified as ‘disposal group’. It will be consolidated but
disclosed separately in the group statement of financial position.
Tag has to be measured at the lower of carrying value and fair value less cost to sell.
As the carrying value is more than the fair value less cost to sell the difference is
impairment loss and has to be written off in year 6. The impairment loss is RM130
million and is first written off against goodwill. The balance is to be written off against
the property, plant and equipment on a pro-rata basis.

Before IL After
RM RM RM
million million million
Goodwill 50 (50) nil
Property, plant and equipment cost 240 (34) 206
Property, plant and equipment at 320 (46) 274
valuation
Inventories 100 100
Trade receivables 60 60
Trade payables (50) (50)
720 (130) 590

Case Study
One of the conditions to meet the criterion of highly probable is that the sale should be
expected to qualify for recognition as a completed sale within one year from the date of
classification. However, events or circumstances may extend the period to complete the
sale beyond one year. An extension of the period required to complete a sale does not
preclude an asset from being classified as held for sale if
1. the delay is caused by events or circumstances beyond the entity’s control and
2. there is sufficient evidence that the entity remains committed to its plan to sell the
asset

2
In that case, the conditions in the above paragraph for an exception to the one-year
requirement would still be met by Max. The assets can still be classified as held for sale
because:

1) The environmental damage is not previously found to exist. Buyer expects Max to
make good of damage. Both events are beyond the control of entity.
2) Max still commit to sell as the company initiate to repair the damage and favourable
outcome is expected to occur.