PFRS5: Non-current assets held for sale and

discontinued operations

When a company makes the decision to sell an asset or to stop some part of its business
or a product line, it is making a decision that affects the future cash flows, profitability
and overall financial situation. The users (primary and secondary) of the financial
statements should be informed about these events. Therefore, PFRS 5 Non-Current
Assets Held for Sale and Discontinued Operations was issued to highlight the results
from continued operations and to separate them from the results of the ongoing
activities. PFRS 5 came into effect on 1 January 2005.

OVERVIEW OF PFRS5
Non-current Assets Held for Sale and Discontinued Operations outlines how to account
for non-current assets held for sale (or for distribution to owners). In general terms,
assets (or disposal groups) held for sale are not depreciated, are measured at the lower
of carrying amount and fair value less costs to sell, and are presented separately in the
statement of financial position. Specific disclosures are also required for discontinued
operations and disposals of non-current assets.
OBJECTIVE OF PFRS 5
PFRS 5 focuses on two main areas:

1. It specifies the accounting treatment for assets (or disposal groups) held for sale,
and
2. It sets the presentation and disclosure requirements for discontinued operations.

HELD FOR SALE CLASSIFICATION

A non-current asset must be classified as held for sale if most of its carrying amount is
expected to be recovered principally from the sale of the asset. PFRS 5 will not apply to
a non-current asset that is going to be abandoned, as the carrying amount of an
abandoned asset will be recovered through future use.

To classify an asset as held for sale, the asset or disposal group must be available for
immediate sale in its present condition and the sale must be highly probable. PFRS 5
sets out criteria for the sale to be highly probable:

• Management must be committed to a plan to sell the asset;

• An active program to find a buyer must be initiated;
• The asset must be actively marketed for sale at a price that is reasonable to its
current fair value;
 • The sale must be completed within one year from the date of classification;

Exceptions;

1. The sale of the asset was affected by circumstances not controllable by the
management.
2. There is sufficient evidence that the management remains committed to
sell the asset.

• Significant changes to be made to the plan must be unlikely or not to be

withdrawn.

HELD FOR DISTRIBUTION TO OWNERS CLASSIFICATION

The classification, presentation, and measurement requirements of PFRS5 also apply to
assets held for distribution to owners. For these assets to be classified as held for
distribution to owners, the assets must be available for immediate distribution and the
distribution must be highly probable.
‘DISPOSAL GROUP’ CONCEPT
Immediately before the asset is classified as held for sale, it should be measured under
its applicable PFRS. Subsequently, after it has been classified as held for sale it must be
measured at the lower of its carrying amount or fair value less costs to sell. However,
PFRS 5 lists a few measurement exceptions:

• Deferred tax assets (IAS 12 Deferred Tax)

• Assets arising from employee benefits (IAS 19 Employee Benefits)
• Financial assets within the scope of PFRS 9 Financial Instruments
• Non-current assets that are accounted for under the fair value model in IAS 40
Investment Property
• Non-current assets that are measured at fair value less costs to sell in accordance
with IAS 41 Agriculture
• Contractual rights under insurance contracts as defined in PFRS 4 Insurance
Contracts.

If any of the above assets are classified as held for sale, they must be measured under
the same accounting policy as before the classification. Although the accounting
treatment of these assets does not change, they must be presented separately from
other assets and they require additional disclosure.

A disposal group is a group of assets, possibly with some associated liabilities, which an
entity intends to dispose a single transaction. The measurement basis required for non-
current assets classified as held for sale is applied to the group, and any resulting
impairment loss reduces the carrying amount of the non-current assets in the disposal
group.
MEASUREMENT
1. Immediately before the asset is classified as held for sale, it should be
measured under its applicable IFRS. Subsequently, after it has been
classified as held for sale it must be measured at the lower of its carrying
amount or fair value less costs to sell. However, IFRS 5 lists a few
measurement exceptions:

• Deferred tax assets (IAS 12 Deferred Tax)

• Assets arising from employee benefits (IAS 19 Employee Benefits)
• Financial assets within the scope of IFRS 9 Financial Instruments
• Non-current assets that are accounted for under the fair value model in
IAS 40 Investment Property
• Non-current assets that are measured at fair value less costs to sell in
accordance with IAS 41 Agriculture
• Contractual rights under insurance contracts as defined in IFRS 4
Insurance Contracts.

If any of the above assets are classified as held for sale, they must be measured under
the same accounting policy as before the classification. Although the accounting
treatment of these assets does not change, they must be presented separately from
other assets and they require additional disclosure.

2. Impairment – It must be considered both at the time of the classification

as held for sale and subsequently;
A. At the time of classification as held for sale

-Any impairment loss should be recognized in accordance with

applicable PFRS and any amount of impairment loss is recognized
in profit or loss.

-If the asset is measured at a revalued amount, it will be treated as

revaluation decrease.

B. After classification as held for sale

-Calculate any impairment loss based on the difference between

adjusted carrying amounts of the asset/disposal group and fair
value less costs to sell

-Any resulting impairment loss including from assets carried at

revalued amounts will be included in the profit or loss.
 C. Asset carried at fair value to initial classification

-For these assets, any cost of disposal may be charged to profit and
loss directly.

D. Subsequent increases in fair value

-A gain from any subsequent increase in fair value less cost to sell
of an asset can be recognized in the profit or loss up to the extent of
the cumulative impairment losses only.

E. No depreciation

-Non-current assets or disposal groups that are classified as held for

sale are not depreciated.

DISCONTINUED OPERATIONS
A discontinued operation is a component of an entity that has been disposed of or is
classified as held for sale, and:

• Represents a separate major line of business or geographical area of operations,

• Is part of a plan to dispose of, or
• Is a subsidiary acquired solely with a view to resale.

PFRS 5 requires discontinued operations to be presented separately in the financial

statements to keep the readers of the financial statements informed about those
operations the entity has discontinued, and those operations the entity is continuing with
in order to generate future profits and cash flows.

PFRS 5 requires discontinued operations to be presented as follows:

1. In the statement of profit and loss and other comprehensive income: a single amount
comprising the total of:

• The post-tax profit or loss of the discontinued operation,

• The post-tax gain or loss recognized on the measurement to fair value less costs
to sell, and
• The post-tax gain or loss recognized on the disposal of assets or the disposal
group making up the discontinued operation.

The analysis of the single amount can be presented in the notes or on the face of the
statement of profit or loss and other comprehensive income.
2. In the statement of cash flows: the net cash flow attributable to the operating,
investing, and financing activities of discontinued operations

3. In the statement of financial position: non-current assets of a disposal group must be

presented separately from other assets. The same applies for liabilities of a disposal
group classified as held for sale.

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