ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41 Ÿ May 2021 CPA Licensure Examination Ÿ Week No. 2

FINANCIAL ACCOUNTING & REPORTING C. Uberita Ÿ G. MacariolaŸ J. Binaluyo

FAR-4102b: DISCONTINUED OPERATION AND NON-CURRENT

ASSETS HELD FOR SALE
Discontinued operation – PFRS 5 defines a discontinued operation as “a component of an entity that either
has been disposed of or is classified as held for sale and:
a. represents a major line of business or geographical area of operation;
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.

Disclosure of Discontinued Operation:

a. a single amount in the statement of comprehensive income comprising the total of:
1. the post-tax profit or loss of discontinued operation; and
2. the post-tax gain or loss recognized on the measurement to fair value less cost to sell, or the disposal of
assets or disposal group(s) constituting the discontinued operation.
b. an analysis of the single amount in (a) into:
1. the revenue, expenses and pre-tax profit or loss of discontinued operations;
2. the related income tax expense as required by PAS 12
3. the gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the
assets or disposal group(s) constituting the discontinued operation; and
4. the related income tax expense as required by PAS 12

Non-current Assets Held for Sale:

Classification as Held for Sale – PFRS 5 prescribed that “an entity shall classify a non-current asset (or
disposal group) as held for sale if its carrying amount will be recovered principally through a sale
transaction rather than through continuing use.

A Non-current Asset Held for Sale may be a single asset, such as a landed property held for sale, or an
equity investment held for sale. A Non-current assets held for sale may constitute a disposal group. PFRS
5 defines a disposal group as “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. The group includes goodwill acquired in business combination, if the group is a cash-generating
unit to which goodwill has been allocated in accordance with the requirements of PAS 36 impairment of
assets, or if it is an operation within such a cash generating unit”. For example, a planned divestment of a
subsidiary or a geographical segment would qualify as a disposal group. Similarly, a planned disposal of a
subsidiary or an operation within the subsidiary, such as its manufacturing plant, would qualify as a disposal
group.

Criteria for Classification: - to meet the classification requirement, the asset (or the disposal group) must
be available for immediate sale in its present condition, subject only to terms that are usual and
customary for sales of such assets (or disposal group), and the sale must be highly probable. Highly
probable is defined in the standard as “significantly more likely than probable”.

For sale to be highly probable, the appropriate level of management must be committed to a plan to sell
the asset (or disposal group), and an active program to locate a buyer and complete the plan must have
been initiated. For major divestment decision, management’s commitment would normally require approval
of the plan to dispose by the Board of Directors, or an equivalent governing body of the entity. The asset
(or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its
current fair value. The sale shall be expected to qualify for recognition as completed sale within one year
from the date of classification, except for circumstances beyond the control of management and actions
required to complete the plan shall indicate that it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn.

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 (or disposal group) from being classified as
held for sale, if the delay is caused by events or circumstances beyond the entity’s control, there is
sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group).

Measurement of Non-current Assets (or Disposal Groups) Held for Sale

a) An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its
carrying amount and fair value less cost to sell”. The carrying amount recorded for the asset (or
disposal group) in the statement of financial position at the date of classification, as held for sale. The fair
value is “the amount for which an asset could be exchanged between knowledgeable, willing parties in an
arm’s length transaction.
b) An entity shall measure a non-current asset (of disposal group) classified as held for distribution to owners
at the lower of its carrying amount and fair value less costs to distribute.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FAR-4102b
Week No. 2: DISCONTINUED OPERATION AND NON-CURRENT ASSETS HELD FOR SALE

c) If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale being
measured on initial recognition at the lower of its carrying amount had it bot been so classified and fair
value less cost to sell. Hence if the asset (of disposal group) is acquired as part of a business combination,
it shall be measured at fair value less cost to sell.
d) When the sale is expected to occur beyond one year, the entity shall measure the cost to sell at their
present value. Any increase in the present value of the costs to sell that arises from the passage of time
shall be presented in profit or loss as a financing cost.
e) Immediately before the initial classification of the asset (or disposal group) as held for sale, the carrying
amounts of the asset (or all the assets and liabilities in the group) shall be measured in accordance with
applicable IFRSs.
f) On subsequent remeasurement of a disposal group,, the carrying amounts of any assets and liabilities that
are not within the scope of the measurement requirements of the IFRS, but are included in a disposal group
classified as held for sale, shall be remeasured in accordance with applicable in accordance with applicable
IFRSs before the fair value less costs to sell of the disposal group is remeasured.

Recognition of impairment losses and Reversals:

a) an entity shall recognize an impairment loss for any initial or subsequent write-down of the asset (or
disposal group) to fair value less costs to sell.
b) An entity shall recognize a gain for any subsequent increase in fair value less cost to sell of an asset, but
not in excess of the cumulative impairment loss that has been recognized

Changes to a Plan of Sale or to a Plan of Distribution to Owners - it is possible that an entity may
change its plan to sell a non-current asset or disposal group after it has been classified as held for sale. If a
change in plan occurs, it is most likely to be caused by events or circumstances beyond the control of the
entity rather than by its own revocation. A change in plan to sell for the may also occur when the criteria
for classification are no longer met.

If the entity has classified an asset (or disposal group) as held for sale or held for distribution to owners,
but the criteria for classification are no longer met, the entity shall cease to classify the asset (or disposal
group) as held for sale or held for distribution to owners

IFRS 5 clarify that if an entity reclassifies an asset (or disposal group) directly from being held for sale to
being held for distribution to owners, or directly from being held for distribution to owners to being held for
sale, then the change in classification is considered a continuation or the original plan of disposal.

When the entity ceases the classification of a non-current asset (or disposal group) as held for sale or as
held for distribution to owners, (or ceases to be included in a disposal group classified as held for sale or
held for distribution to owners), it shall measure the asset or disposal group at the lower of:
a) Its carrying amount before the asset (or disposal group) was classified as held for sale or as held for
distribution to owners, adjusted for any depreciation, amortization or revaluations that would have
recognized had the asset (or disposal group) not been classified as held for sale or as held for
distribution to owners, and
b) Its recoverable amount at the date of the subsequent decision not to sell or distribute.

The entity shall include any required adjustment to the carrying amount of a non-current asset that ceases
to be classified as held for sale or as held for distribution to owners in profit or loss from continuing
operations in the period in which the criteria for classification are no longer met. The entity shall present
the same caption in the statement of comprehensive income used to present a gain or loss, if any,
recognized in profit or loss from continuing operations.

If an entity removes an individual asset or liability from a disposal group classified as held for sale or as
held for distribution to owners, the remaining assets and liabilities of the disposal group to be sold or to be
distributed to owners shall continue to be measured as a group only if the group meets the criteria for
classification. Otherwise, the remaining non-current assets of the group that individually meets the criteria
to be classified as held for sale or as held for distribution to owners, shall be measured individually at the
lower of their carrying amounts and fair values less cost to sell at that date. Any non-current asset that do
not meet the criteria shall cease to be classified as held for sale or as held for distribution to owners and
measured at lower of its carrying amount that would have been determined, had it not been classified as
held for sale or as held for distribution to owners and its recoverable amount.

Presentation of Non-Current Asset or Disposal Group Held for Sale – an entity shall present a non-
current asset classified as held for sale and the assets of the disposal group classified as held for sale,
separately from other assets in the statement of financial position. The liabilities of a disposal group
classified as held for sale shall be presented separately from other liabilities in the statement of financial
position. Those assets and liabilities shall not be offset and presented as a single amount. The major
classes of assets and liabilities classified as held for sale shall be separately disclosed either on the face of
the statement of financial position or in the notes. An entity shall present separately any cumulative income
or expense recognized directly in equity relating to a non-current asset (or disposal group) classified as held
for sale

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