NON-CURRENT ASSETS HELD FOR SALE (PFRS 5)

When an entity plans to sell an asset and/or stop some part of its business, then it might
affect its future cash flows, profitability and overall financial situation.

Therefore, the users of financial statements, mainly investors, should be informed about
these events.

PFRS 5 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.

PFRS 5, paragraph 6, provides that a non-current assets or disposal group is classified

as held for sale if the carrying amount will be recovered principally through a sale
transaction rather than through continuing use

Disposal group concept

A 'disposal group' is a group of assets, possibly with some associated liabilities, which
an entity intends to dispose of in a single transaction. The measurement basis required
for non-current assets classified as held for sale is applied to the group as a whole, and
any resulting impairment loss reduces the carrying amount of the non-current assets in
the disposal group in the order of allocation required by PAS 36.

Held-for-sale classification

The following conditions must be met for an asset to be classified as held for sale:

1. management is committed to a plan to sell;

2. the asset is available for immediate sale;
3. an active program to locate a buyer is initiated;
4. the sale is highly probable, within 12 months of classification as held for sale;
5. the asset is being actively marketed for sale at a sales price reasonable in
relation to its fair value; and
6. actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn

Measurement of Asset Held for Sale

Lower of carrying amount and fair value less costs of disposal

Impairment must be considered both at the time of classification as held for sale and
subsequently. Calculate any impairment loss based on the difference between the
adjusted carrying amounts of the asset/disposal group and fair value less costs of
disposal. Any impairment loss that arises by using the measurement principles in PFRS
5 must be recognized in profit or loss.

Subsequent increases in fair value. A gain for any subsequent increase in fair value less
costs to sell of an asset can be recognized in the profit or loss to the extent that it is not
in excess of the cumulative impairment loss that has been recognized

Illustration

On January 1, 2016 an entity acquired and equipment at a cost of P 5,000,000 to be

used in the ordinary course of business. The equipment has an estimated useful life of
10 years and a residual value of P500,000. On January 1, 2019 that equipment was
classified as held for sale. On such date, the fair value less cost of disposal was
estimated at P1,900,000. On June 30, 2019, the equipment was sold for P1,500,000

January 1, 2019 Equipment held for sale 3,650,000

Accumulated Depreciation 1,350,000

Equipment 5,000,000

To remove the equipment from PPE

Impairment loss 1,750,000

Equipment held for sale 1,750,000

To recognize impairment loss

June 30, 2019 Cash 1,500,000

Loss on sale of equipment 400,000

Equipment held for sale 1,900,000

To record the sale of the equipment