Conceptual Framework and Reporting Standards

Asynchronous Activity
October 31, 2023

General Instruction: Kindly write your answers on a clean yellow pad and submit a
hard copy on Monday, November 6, 2023.

PFRS 5 Non-current asset held for sale

1. Determine when to classify a non-current asset held for sale.

A non-current asset (or disposal group) is classified as held for sale or held for
distribution to owners if its carrying amount will be recovered principally through a
sale transaction rather than through continuing use. Assets classified as
noncurrent in accordance with PAS1 are classified as current only if they meet
the criteria to be classified as held for sale under PFRS 5.

Held-for-sale classification

In general, the following conditions must be met for an asset (or 'disposal group')
to be classified as held for sale:

● management is committed to a plan to sell

● the asset is available for immediate sale
● an active programme to locate a buyer is initiated
● the sale is highly probable, within 12 months of classification as held for
sale (subject to limited exceptions)

2. Explain measurement of non-current asset held for sale.

Initial and subsequent measurement

● Lower of carrying amount and fair value less cost to sell.

● A write-down to fair value less cost to sell, and related reversal thereof, is
recognized in profit or loss.
● Reversal of impairment is recognized as gain to the extent of cumulative
impairment loss that has been recognized.
● Depreciation (amortization) ceases during the period an asset is classified
as held for sale.
3. Illustrate accounting for impairment loss recognized for a non-current asset held for
sale.

An impairment loss should be recognized where fair value less costs of disposal
is lower than carrying amount. Note that this is an exception to the normal rule.
PAS 36 Impairment of Assets requires an entity to recognize an impairment loss
only where an asset's recoverable amount is lower than its carrying value.
Recoverable amount is defined as the higher of fair value less costs of disposal
and value in use. PAS 36 does not apply to assets held for sale. An impairment
loss on an asset held under PFRS 5 is charged to profit or loss.

4. Explain accounting for a non-current asset that ceased to be classified as held for
sale.

A non-current asset that ceases to be classified as held for sale shall be

measured at the lower of the asset’s:

● Carrying amount before it was classified as held for sale, adjusted for any
depreciation, amortization or revaluation that would have been recognized
had the asset not been classified
● Recoverable amount at the date of the subsequent decision not to sell.

5. Describe the presentation and disclosure requirements for non-current asset (for
disposal group) held for sale.

Non-current assets and disposal groups classified as held for sale should be
presented separately from other assets in the statement of financial position. The
liabilities of a disposal group should be presented separately from other liabilities
in the statement of financial position:

● Assets and liabilities held for sale should not be offset.

● The major classes of assets and liabilities held for sale should be
separately disclosed either on the face of the statement of financial
position or in the notes.
● PFRS 5 requires non-current assets or disposal groups held for sale to be
shown as a separate component of current assets/current liabilities.

In the period in which a non-current asset (or disposal group) has been either
classified as held for sale or sold the following should be disclosed:

● A description of the non-current asset (or disposal group)

● A description of the facts and circumstances of the disposal
● Any gain or loss recognized when the item was classified as held for sale
 Where an asset previously classified as held for sale is no longer held for sale,
the entity should disclose a description of the facts and circumstances leading to
the decision and its effect on results.

6. What is a discontinued operation?

Discontinued operation. A component of an entity that has either 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 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.

PAS 21 The effects of changes in foreign exchange rates

1. Define the following terms:

a. Foreign Currency- A currency other than the functional currency of the
entity.
b. Functional Currency- The currency of the primary economic
environment in which the entity operates.
c. Presentation Currency- The currency in which the financial statements
are presented.
d. Exchange rate- The ratio of exchange for two currencies.
e. Closing rate- The spot exchange rate at the year-end date.
f. Historical/Spot rate- The exchange rate for immediate delivery.

2. Discuss briefly the difference of conversion and translation.

Conversion happens when one currency is converted into another for a

determined rate. It is usually used when transacting in other countries in which
the currency should be converted based on the foreign currency exchange rate
on the time of payment. On the other hand, translation is used to translate the
results of a parent company's foreign subsidiaries to the parent company's
reporting currency. This is a crucial phase in the financial statement consolidation
process. Additionally, translation is necessary at the end of each accounting
period.