Chapter 12 ~ PFRS 5 Non-Current Assets Held for Sale 12 PFRS 5 - NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS © Objectives and Scope ~ Q&A #1-2 * Held for Sale Classification — Q&A #3-9 ‘* Measurement — Q&A #10-11 : © Change of Plans — Q&A #12-13 * Presentation and Disclosures — Q&A #14-15 ‘* Discontinued Operations - Q&A #16-18 OBJECTIVE AND SCOPE 1. Whats the objective of PFRS 5? The objective of PFRS S is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. PFRS 5 requires: a. assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease; and b. assets that meet the criteria to be classified as held for sale to be presented separately in the statement of financial position and the results of discontinued operations to be presented separately in the statement of comprehensive income.. 2. What is the scope of PFRS 5? The classification and presentation requirements of PFRS 5 will apply to all recognized non-current assets and to.all disposal groups of an entity. The measurement requirements shall apply to all recognized non-current assets and disposal groups, except for the following which shall be measured in accordance with their standards. a. Deferred tax assets (PAS 12 Income taxes) b. Assets arising from employee benefits (PAS 19 Employee Benefits) . Financial assets within the scope of PFRS 9 Financial Instruments. d. Non-current assets that are accounted for in accordance with that fair value model in PAS 40 Investment Property. e. Non-current assets that are measured at fair value less cost to sell in accordance with PAS 41 Agriculture f. Groups of contracts within the scope of PFRS 17 Insurance Contracts. HELD FOR SALE CLASSIFICATION 3. When does an entity classify non-current assets (or eepoeel groups) as held for sale or as held for distribution to owners? PERS 5 provides 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. For this to be the case, the asset (or disposal group) must be 217Chapter 12 ~ PFAS 5 Non-Current Assets Held for Sale available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. 4, When does a sale of non-current assets (or disposal group) be highly probable? For the 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. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except if the delay is caused by events or circumstances beyond the entity's control and there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group), and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. 5. Whatis a disposal group? According to PERS 5, a disposal group is a group of assets (and liabilities directly associated with those assets) to be disposed of, by sale or otherwise together as a group in a single transaction. 6. Is goodwill be included in a disposal group? Goodwill acquired in a business combination is included in the disposal group if this group is a cash-generating unit to which goodwill has been allocated in accordance with PAS 36 or if itis an operation within such cash-generating unit. 7. In what situations will there be an extension on the sale within one year from the date of classification? PFRS 5 provides the following: a. The reporting entity has committed itself to sell an asset, and it expects that other may impose conditions on the transfer of the asset that could not be completed until after a firm purchase commitment has been made, and a firm purchase commitment is highly probable within one year. b. Afirm purchase commitment is made but a buyer unexpectedly imposes conditions on the transfer of the asset held for sale; timely actions are being taken to respond to the conditions, and a favorable resolution is anticipated. c. During the one-year period, unforeseen circumstances arise that were considered unlikely, and the asset is not sold. Necessary action to respond to the change in circumstances should be taken. The asset should be actively marketed as held-for-sale should have been met. 8. What will the entity do if the criteria set for non-current asset (disposal group) held for sale are met after the reporting period? If the criteria set in no. 3 and 4 above are met after the reporting period, an entity shall not classify a non-current asset (or disposal group) as held for.sale in those financial 218Chapter 12 ~PFRS 5 Non-Current Assets Held for Sale statements when issued. However, when those criteria are met after the reporting period but before the authorization of the financial statements for issue, the entity shall disclose the information specified in paragraph 41 (a), (b), and (d) in the notes. 9. Does an entity classify a non-current asset that are to be abandoned as held for sale? No. An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will bé recovered principally through continuing use. However, a disposal group that is to be abandoned may meet the definition of a discontinued activity. MEASUREMENT 10. How does an entity measure a non-current assets held for sale? As provided under PFRS'S, the following principles would apply in measuring non-current assets that are held for sale: a. Before an asset is initially classified as held-for-sale, it is measured in accordance with the applicable PFRS (e.g. PAS 16 is used for PPE) b. When non-current assets or disposal group are classified as held-for-sale, the entity shall measure it at the lower of its carrying amount and fair value less costs to sell. c. When the sale is expected to occur beyond one year, the entity shall measure the costs 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. d. Any impairment loss is recognized in profit or loss on any initial or subsequent write- down of the asset or disposal group to fair value less cost to sell. e. Any subsequent increases in fair value less cost to sell of an asset can be recognized in profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognized in accordance with PFRS 5. f. Any impairment loss recognized for a disposal group should be applied in the order set out in PAS 36. g. Non-current assets or disposal groups classified as held-for-sale should not be depreciated. Any interest or expenses of a disposal group should continue to be provided for. Take Note: For assets not previously revalued, any recorded decrease in carrying amount (to fair value less cost to selll or value in use) would be an impairment loss taken as charge against income; subsequent changes in fair value would also be recognized, but not increases in excess of impairment losses previously recognized. 7 For an asset that is carried at a revalued amount, revaluation under that standard will have to be effected immediately before it is reclassified as held-for-sale under this standard, with any impairment loss recognized in accordance with PAS 16 and PAS 36. Subsequent increases or decreases in estimated fair value less costs to sell the asset will be recognized in profit or loss. 219Chapter 12 ~ PFRS 5 Non-Current Assets Held for Sale 11. How does an entity measure non-current assets held for distribution to owners? An entity shall measure a non-current asset (or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair value less costs to distribute. CHANGE OF PLANS 12. What happens when there is a change in the plan to sale or to a plan of distribution to owners? How this will be measured? If the asset held for sale or held for distribution to owners is not later disposed of or distributed, it is to be reclassified to the operating asset category it is properly assignable to. The entity shall measure a non-current asset (or disposal group) that ceases to be classified 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 as held for distribution to owners) 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 been 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. If the non-current asset is part of a cash-generating unit, its recoverable amount is the carrying amount that would have been recognized after the allocation of any impairment loss arising on that cash-generating unit in accordance with PAS 36. 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 as held- for-sale or held for distribution to owners are no longer met: It must be noted that it is not an adjustment to prior period results of operation under any circumstances. 13, What will happen if an entity removes an individual asset or liability from a disposal group classified as held for sale? If an entity removes an individual asset or liability from a disposal group classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the group meets the criteria for non-current asset held for sale, If an entity removes an individual asset or liablity from a disposal group classified as held for distribution to owners, the remaining assets and liabilities of the disposal group to be distributed shall continue to be measured as a group only if the group meets the criteria for non-current asset held for distribution to owners. Otherwise, the remaining non-current assets of the group that individually meet the criteria to be classified as held for sale (or as held for distribution to owners) shall be measured 220Chapter 12 PFRS 5 Non-Current Assets Held for Sale individually at the lower of their carrying amounts and fair values less costs to sell (or costs to distribute) at that date. Any non-current assets that do not meet the criteria for held for sale (distribution to owners) shall cease to be classified as held for sale (distribution to owners) as set out in the criteria on changes of plans. PRESENTATION AND DISCLOSURE 14, How does an entity present non-current asset classified as held-for-sale? PFRS 5 provides that non-current assets classified as held-for-sale and the assets of disposal group classified as held-for-sale must be presented separately from other assets in the statement of financial position. The liabilities of a disposal group classified as held-for- sale are also presented separately from other liabilities in the statement of financial position. 15. What are the minimum disclosures required under non-current asset classified as held for sale aside those stated in PAS 1? ‘An entity shall disclose the following information in the notes in the period in which a non-current asset (or disposal group) has been either classified as held for sale or sold: a.) a description of the non-current asset (or disposal group); b.)a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal; .) the gain or loss recognized in accordance with paragraphs 20-22 of PFRS 5 and, if not separately presented in the statement of comprehensive income, the caption in the statement of comprehensive income that includes that gain or loss; d.)if applicable, the reportable segment in which the non-current asset (or disposal group) is presented in accordance with PFRS 8 Operating Segments. DISCONTINUED OPERATIONS 16. What is a discontinued operation under PFRS 5? A discontinued operation is a component of an entity that either has 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 coordinated plan to dispose of a separate major line of business or geographical area of operations or .) is a subsidiary acquired exclusively with a view to resale. 17. How does an entity present a discontinued operation? An entity should present in the in the statement of comprehensive income a single amount comprising the total of: a.) The after-tax profit or loss of discontinued operations; and b.) The after-tax gain or loss recognized on the measurement to fair value less cost to sell (or on the disposal) of the assets or disposal groups classified as discontinued operations, *. a7Chapter 12 ~ PFRS 5 Non-Current Assets Held for Sale 18, What are the required disclosures for discontinued operations? The entity shall disclose: a,)a single amount in the statement of comprehensive income comprising the total of: i. the post-tax profit or loss of discontinued operations and ii, the post-tax gain or loss recognized on the measurement to fair value less costs sell or on the disposal of the assets or disposal group(s) constituting t discontinued operation. b.)an analysis of the single amount in (a) into: i, the revenue, expenses and pre-tax profit or loss of discontinued operations; t related income tax expense. ji, the gain or loss recognized on the measurement to fair value less costs to sell on the disposal of the assets or disposal group(s) constituting the discontinu operation; and the related income tax expense. The analysis may be presented in the notes or in the statement of comprehensi income. Ifit is presented in the statement of comprehensive income it shall be present in a section identified as relating to discontinued operations, i.e. separately fre continuing operations. ¢.) the net cash flows attributable to the operating, investing and financing activities discontinued operations. These disclosures may be presented either in the notes or the financial statements. d,)the amount of income from continuing operations and from discontinued operatio attributable to owners of the parent. These disclosures may be presented either in t notes or in the statement of comprehensive income. Take note: Any disclosures should cover both the current and all prior periods that ha been shown in the financial statements. Retrospective classification as a discontinur operation, where the criteria are met after the statement of financial position date, prohibited by PFRS. PERS for SMEs There are no provisions under PFRS for SMEs for noncurrent assets held for sale ar discontinued operations. Hence, the rules under Full PFRS will apply. SUMMARY OF KEY POINTS = Anentity shall classify a non-current asset (or disposal group) as held for sale ifits carryit amount will be recovered principally through a sale transaction rather than throuc continuing use. +The sale is highly probable (1) when management is committed to a plan to sell th (2) an active program to locate a buyer and complete the plan must have been ii 222°Chapter 12 - PFRS 5 Non-Current Assets Held for Sale (3) the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value, and (3) the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. * Goodwill acquired in a business combination is included in the disposal group if this group is a cash-generating unit to which goodwill has been allocated. * Anon-current assets or disposal group are classified as held-for-sale is measure it at the lower of its carrying amount and fair value less costs to sell. * An entity shall measure a non-current asset (or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair value less costs to distribute. © If the asset held for sale or held for distribution to owners is not later disposed of or distributed, it is to be reclassified to the operating asset category it is properly assignable to and is measured at lower of (1) carrying amount of the asset as if it was not held for sale, and (2) recoverable amount at the date of the subsequent decision not to sell or distribute. Exercise 12-1. Identification 1. The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. ; cab 2. Itis the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. a.).0 uf 3. An agreement with an unrelated party, binding on both parties and usually legally enforceable, that (a) specifies all significant terms, including the price and timing of the transactions, and (b) includes a disincentive for non-performance that is sufficiently large to make performance highly probable. 4. The higher of an asset's fair value less costs to sell and its value in use. 5S. The present value of estimated future cash flows expected to arise from the continuing use of an asset-and from its disposal at the end of its useful life. Fa. re 6. Operations. and cash flows that can be ‘clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. 223