CHAPTER 2 - Non-current Assets Held for Sale and Discontinued Operations

I. Non-current Assets Held-for-sale

In general, the following conditions must be met for an asset (or 'disposal group') to be classified as
held for sale: [IFRS 5.6-8]
• 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)
• The asset is being actively marketed for sale at a sales price reasonable in relation to its fair
value
• Actions required to complete the plan indicate that it is unlikely that plan will be significantly
changed or withdrawn

The assets need to be disposed of through sale. Therefore, operations that are expected to be wound
down or abandoned would not meet the definition (but may be classified as discontinued once
abandoned). [IFRS 5.13]

Held for distribution to owners classification

The classification, presentation and measurement requirements of IFRS 5 also apply to a non-current
asset (or disposal group) that is classified as held for distribution to owners. [IFRS 5.5A and IFRIC 17]
The entity must be committed to the distribution, the assets must be available for immediate
distribution and the distribution must be highly probable. [IFRS 5.12A]

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 IAS 36. [IFRS 5.4]

Measurement of Non-current Assets Held-for-sale

Initial Measurement
Immediately before the initial classification of the asset as held for sale, the carrying amount of the
asset will be measured in accordance with applicable IFRSs Resulting adjustments are also recognized in
accordance with applicable IFRSs. [IFRS 5.18]
Subsequent Measurement
Non-current assets or disposal groups that are classified as held for sale are measured at the lower of
carrying amount and fair value less costs to sell (fair value less costs to distribute in the case of assets
classified as held for distribution to owners). [IFRS 5.15-15A]

If the item qualifying for initially classification as held-for-sale was previously property, plant and
equipment, it will be measured at the carrying amount after applying PAS 16, adjusting for
accumulated depreciation and impairment. After initial recognition, the asset will now be measured
at lower of carrying amount and fair value less costs to sell.

Impairment of Non-current Assets Held-for-sale

Impairment must be considered both at the time of classification as held for sale and subsequently:
• At the time of classification as held for sale. Immediately prior to classifying an asset or disposal
group as held for sale, impairment is measured and recognised in accordance with the applicable
IFRSs.
• After classification as held for sale. Calculate any impairment loss based on the difference
between the adjusted carrying amounts of the asset/disposal group and fair value less costs to
sell.

Subsequent increases in fair value.

A gain for any subsequent increase in fair value less costs to sell of an asset can be recognised in the
profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been
recognised in accordance with IFRS 5 or previously in accordance with IAS 36. [IFRS 5.21-22]

No depreciation.
Non-current assets or disposal groups that are classified as held for sale are not depreciated. [IFRS
5.25]

Presentation and Disclosures

Presentation
Assets classified as held for sale, and the assets and liabilities included within a disposal group
classified as held for sale, must be presented separately on the face of the statement of financial
position. [IFRS 5.38]

Disclosures
IFRS 5 requires the following disclosures about assets (or disposal groups) that are held for sale:
[IFRS 5.41]
• Description of the non-current asset or disposal group
• Description of facts and circumstances of the sale (disposal) and the expected timing
• Impairment losses and reversals, if any, and where in the statement of comprehensive
income they are recognised
• If applicable, the reportable segment in which the non-current asset (or disposal group) is
presented in accordance with IFRS 8 Operating Segments

II. Discontinued Operations

Classification as discontinuing operations

A discontinued operation is a component of an entity that either has been disposed of or is classified
as held for sale, and: [IFRS 5.32]
• represents either a separate major line of business or a 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; and
• is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of
control.
IFRS 5 prohibits the retroactive classification as a discontinued operation, when the discontinued
criteria are met after the end of the reporting period. [IFRS 5.12]
Cash flow information
The net cash flows attributable to the operating, investing, and financing activities of a discontinued
operation is separately presented on the face of the cash flow statement or disclosed in the notes.
[IFRS 5.33]

Presentation and Disclosures

The following are required:
• The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or
loss recognised on the measurement to fair value less cost to sell or fair value adjustments on
the disposal of the assets (or disposal group) is presented as a single amount on the face of the
statement of comprehensive income. If the entity presents profit or loss in a separate
statement, a section identified as relating to discontinued operations is presented in that
separate statement. [IFRS 5.33-33A].
• Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income taxes is
required either in the notes or in the statement of comprehensive income in a section distinct
from continuing operations. [IFRS 5.33] Such detailed disclosures must cover both the current
and all prior periods presented in the financial statements. [IFRS 5.34]
• Adjustments made in the current period to amounts disclosed as a discontinued operation in
prior periods must be separately disclosed [IFRS 5.35]
• If an entity ceases to classify a component as held for sale, the results of that component
previously presented in discontinued operations must be reclassified and included in income
from continuing operations for all periods presented [IFRS 5.36]
Illustrative Problem 1:
On January 1, 2023, Diluc acquired land for a cost of P3,500,000 and a building costing P6,500,000. The
building has a useful life of 5 years with no residual value. The land and building were properly included
under the caption of “Property Plant and Equipment”. On July 1, 2023 due to management decisions,
the land and building qualified as “Held for sale” under IFRS 5 provisions on the same date the land had
a fair value less cost to sell of P4,000,000, and the building P4,800,000. The fair value less cost to sell of
the land and building remained the same until December 31, 2023
Requirements:
1. What amount of assets must be presented in the December 31, 2023 financial statements from
the foregoing events?
2. What amount of depreciation expense was recorded in 2023?

Illustrative Problem 2:
Dvalin Corp had the following transactions related to some of its properties.
• On January 1, 2023, Dvalin acquired equipment for cash at a cost of P6,000,000. The
equipment has a life of 6 years with no residual value and will be depreciated using the straight
line method.
• On March 1, 2023 the equipment was reclassified to held for sale under IFRS 5 provisions. On
the same date the equipment had a fair value less cost to sell of P5,500,000.
• On December 31, 2023 been sold for P3,200,000.
Requirement: Provide the journal entries for the foregoing transactions.

Illustrative Problem 3:
Katin Co. decided on August 1, 2023, to dispose of a component of business. The component was sold
on November 30, 2023.
The net income for the current year included income of P5,000,000 from operating the discontinued
segment from January 1 to the date of disposal. The entity incurred a loss on the November 30 sale of
P4,500,000.
Requirement: What amount should be reported as pretax income or loss from discontinued
operation for 2023?

Illustrative Problem 4:
LJS trading reported the following data for the current year:
Income from continuing operations P 700,000
Net Income 500,000
Selling and administrative expenses 2,250,000
Income before tax 1,000,000
Requirement: What amount should be reported as income or loss from discontinued operations?
Illustrative Problem 5:
On December 1, 2023, Ikawat A Co. committed to plan to dispose of a business component’s assets. The
disposal met the requirements to be classified as discontinued operation. On that date, the entity
estimated that the loss from disposition of the assets would be P700000 and the component’s operating
loss was P200000.
Requirement: Before income tax, what amount of loss should be reported for discontinued operation
for 2023?

EXERCISES

NONCURRENT ASSET HELD FOR SALE

Problem 1

Dana Company accounted for noncurrent assets using the cost model On October 1, 2022, the entity
classified a noncurrent asset as held for sale.

At that date, the carrying amount was P3,200,000, the fair value was estimated at P2,200,000 and the
cost of disposal at P200,000. On December 15, 2022, the asset was sold for net proceeds of P1,850,000.

What amount should be included as an impairment loss in the statement of comprehensive income for
the year ended December 31, 2022

a. 1,000,000 b. 1,200,000 c. 1,350,000 d. 0

PFRS 5, paragraph 15, provides that an entity shall measure a noncurrent asset or disposal group
classified as held for sale at the lower of carrying amount and fair value less cost of disposal

Problem 2

Arlene Company accounted for noncurrent assets using the cost model. On October 30, 2023, the entity
classified a noncurrent asset as held for sale.

At that date, the carrying amount was P1,500,000, the fair value was estimated at P1,100,000 and the
cost of f disposal at P150,000. On November 20, 2023, the asset was sold for net proceeds of P800,000.

1. What amount should be reported as impairment loss for 2023?

A. 550,000 C. 400,000
B. 700,000 D. 0

2. What amount should be included as loss on disposal in the statement of comprehensive income
for the year ended December 31, 2017?

a. 550,000 c. 150,000
 b. 700,000 d. 0

Problem 3

On January 1, 2021, Racelle Company purchased land at a cost of P6,000,000. The entity used the
revaluation model for this asset.

The fair value of the land was P7,000,000 on December 31, 2021 and P8,500,000 on December 31, 2022.

On July 1, 2023, the entity decided to sell the land and therefore classified the asset as held for sale.

The fair value of the land on this date is P7,600,000. The estimated cost of disposal is very minimal.

On December 31, 2023, the land was sold for P8,000,000.

1. What amount in OCI should be recognized in the statement of comprehensive income for the
year ended December 31, 2022?

a. 2,500,000 b. 1,500,000 c. 400,000 d. 900,000

2. What amount of gain or loss on sale of land is recognized in 2023?

a. 2,000,000 gain b. 1,000,000 gain c. 400,000 gain d. 500,000 loss

3. What amount of OCI is recycled to retained earnings in 2023?

a. 1,000,000
b. 1,600,000
c. 2,500,000
d. 2,000,000

Problem 4

Surreal Company accounted for noncurrent assets using the revaluation model. On October 1, 2022, the
entity classified a land as held for sale.

At that date, the carrying amount of the land was P5,000,000 and the

Balance in the revaluation surplus was P1,500,000. At same date, the fair value of the land was
estimated at P5,500,000 and the cost of disposal at P100,000.

On December 31, 2022, the fair value less cost of disposal of the land did not change. The land was sold
on January 31, 2023 for P6,000,000.

1. What is the impairment loss in 2022?

a. 100,000 c. 400,000
b. 500,000 d. 0
2. What is the adjusted carrying amount of the land on December 31, 2022?
 a. 5,000,000
b. 5,500,000
c. 5,400,000
d. 3,500,000
3. What amount should be reported as gain on disposal of land in 2023?
a. 1,000,000
b. 2,600,000
c. 500,000
d. 600,000
4. What amount of OCI is reclassified to retained earnings in 2023?
a. 1,500,000
b. 2,000,000
c. 500,000
d. 0

Problem 5

On April 1, 2022, Brandy Company had a machine with a cost of P5,000,000 and accumulated
depreciation of P3,750,000.

On April 1, 2022, the entity classified the machine as held for sale and decided to sell the machine within
one year.

On April 1, 2022, the machine had an estimated selling price of P500,000 and a remaining useful life of 2
years.

It is estimated that selling cost associated with the disposal of the machine will be P50,000.

On December 31, 2022, the estimated selling price of the machine had increased to P750,000 with
estimated selling cost of P100,000.

1. What amount of impairment loss should be recognized in 2022?

a. 1,250,000

b. 800,000

c. 750,000

d. 0

2. What amount should be recognized as gain on reversal of impairment on December 31, 2022?

a. 468,750

b. 368,750

c. 300,000
d. 200,000

Note that there is no depreciation from April 1, 2022 to December 31, 2022.

PFRS 5, paragraph 25, provides that an entity shall not depreciate a noncurrent asset while it is classified
as held for sale or while it is part of a disposal group classified as held for sale.

Problem 6

Affable Company purchased an equipment for P5,000,000 on January 1, 2022. The equipment had a
useful life of 5 years with no residual value.

On December 31, 2022, the entity classified the equipment as held for sale. On such date, the fair value
less cost of disposal of the equipment was P3,500,000.

On December 31, 2023, the entity believed that the criteria for classification as held for sale can no
longer be met. Accordingly, the entity decided not to sell the equipment but to continue to use it.

On December 31, 2023, the fair value less cost of disposal of the Equipment was P2,700,000.

1. What is the carrying amount of the equipment on December 31, 2022 before classification as
held for sale?

a. 5,000,000

b. 4,000,000

c. 3,500,000

d. 4,500,000

2. What amount of impairment loss should be recognized in 2022?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

3. What amount should be included in profit or loss in 2023 as a result of the reclassification of the
equipment to property, plant and equipment?
a. 800,000 gain b. 800,000 loss c. 300,000 gain d. 300,000 gain

4. What is the adjusted carrying amount of the equipment on December 31, 2024
a. 2,700,000
b. 1,800,000
c. 2,000,000
d. 3,000,000
Under PFRS 5, paragraph 27, an entity shall measure a noncurrent asset that ceases to be classified as
held for sale at the lower between:

a. The carrying amount on the basis that the asset had never been classified as held for sale.
b. The recoverable amount on the date of the decision not to sell. The recoverable amount is the
higher between fair value less cost of disposal and value in use.

Problem 7

Clara Company purchased equipment for P5,000,000 on January 1, 2022 with a useful life e of 10 years
and no residual value.

On December 31, 2023, the entity classified the equipment as held for Sale. The fair value of the
equipment on December 31, 2018 was P3,300,000 and the cost of disposal P100,000.

On December 31, 2024, the fair value of the equipment was P3,800,000 and the cost of disposal
P200,000. The value in use was determined to be P3,300,000.

On December 31, 2024, the entity believed that the criteria for Classification as held for sale can no
longer be met.

Accordingly, the entity decided not to sell the asset but to continue to use it.

1. What is the impairment loss to be recognized on December 31, 2023?

a. 1,300,000
b. 800,000
c. 700,000
d. 0
2. What is the measurement of the equipment that ceases as held for sale on December 31, 2023?
a. 3,200,000
b. 4,000,000
c. 3,500,000
d. 3,600,000
3. What amount should be recognized in profit or loss as a result of the reclassification in 2023?
a. 800,000
b. 300,000
c. 400,000
d. 0
DISCONTINUED OPERATIONS

Problem 1

On December 31, 2022, Max Company committed to a plan to discontinue the operations of Underwear
Division.

The entity estimated that the division’s operating loss for 2023 would be P500,000.

The fair value of the facilities was P300,000 less than carrying amount on December 31, 2023.

The division’s operating loss for 2022 was P1,400,000 and the division was actually sold for P400,000
less than carrying amount in 2023. The income tax rate is 30%.

What amount should be reported as loss from discontinued operation in 2022?

a. 1,700,000 b. 1,190,000 c. 1,400,000 d. 980,000

Problem 2

Purple Company correctly classified the packaging operation as a disposal group held for sale and as
discontinued operation.

For the current year, this disposal group incurred trading loss of P2,000,000 after tax and the loss on
remeasuring it to fair value less cost of disposal was P1,500,000.

What total amount of the disposal group’s losses should be included in profit or loss for the current
year?

a. 3,500,000 b. 2,000,000 c. 1,500,000 d. 0

Problem 3

Sky Company reported the following data for the current year:

Income from continuing operations 700,000

Net income 500,000

Selling and administrative expenses 2,250,000

Income before income tax 1,000,000

What amount should be reported as income or loss from discontinued Operations?

a. 700,000 income b. 500,000 income c. 100,000 loss d. 200,000 loss

Problem 4

In 2022, Isuzu Company decided to discontinue the Electronics Division, a separately identifiable
component of Isuzu’s business. On December 31, 2022, the division had not been completely sold.
However, negotiations for the final and complete sale are progressing in a positive manner and it is
probable that the disposal will be completed within a year.

Analysis of the records for the year disclosed the following relative to the Electronics Division:

Operating loss for the current year 8,000,000

Loss on disposal of some Electronics Division assets during 2022 500,000

Expected operating loss in 2023 preceding final disposal 1,000,000

Expected gain in 2023 on disposal of division 2,000,000

What amount should be reported as pretax loss from discontinued operation in 2017?

a. 8,000,000 b. 8,500,000 c. 9,500,000 d. 7,500,000

Problem 5

In December 1, 2022, Greer Company committedto a plan to dispose of a business component's assets.
The disposal met the requirements to be classified as discontinued operation.

On that date, the entity estimated that the loss from the disposition of the assets would be P700,000
and the component's operating loss was P200,000.

Before income tax, what amount of loss should be reported for discontinued operation for 2022?

a. 900,000 b. 200,000 c. 700,000 d. 0

Problem 6

On January 1, 2022, Deer Company had a division that met the criteria for discontinuance of a business
component.

For the period January 1 through October 15, 2022, the component had revenue of P500,000 and
expenses of P800,000. The assets of the component were sold on October 15, 2022 at a loss of
P100,000.

How should Deer report the component's operation for 2022?

a. 500,000 and 800,000 should be included in continuing operations

b. 400,000 should be reported as loss on discontinued operations

c. 400,000 should be reported as an extraordinary loss

d. 300,000 should be reported as loss on discontinued operations

Problem 7

Booker Company committed to sell the comic book division, a component of the business, on September
1, 2022.

The carrying amount of the division was P4,000,000 and the fair value was P3,500,000. The disposal
date is expected on June 1, 2023. The division reported

An operating loss of P200,000 for the year ended December 31, 2022.

Before income tax, what amount should be reported as loss from Discontinued operation in 2022?

a. 500,000 b. 200,000 c. 700,000 d. 0

Problem 8

Enron Company decided on August 1, 2022 to dispose of a component of business. The component was
sold on November 30, 2022.

The net income for the current year included income of P5,000,000 from operating the discontinued
segment from January 1 to the date of disposal. The entity incurred a loss on the November 30 sale of
P4,500,000.

What amount should be reported as pretax income or loss from discontinued operation for 2022?

a. 4,500,000 loss
b. 5,000,000 income
c. 500,000 loss
d. 500,000 income

Problem 9

Zebra Company is a diversified entity with nationwide interests in commercial real estate development,
banking, idees ned food distribution. The food distribution division was deemed Inconsistent with the
long-term direction of the entity.

On October 1, 2022 the board of directors voted to approve the Disposal of this division. The sale is
expected to occur in August 2023.

The food distribution had revenue of P35,000,000 and expenses of P27,000,000 for the period January 1
to September 30, and revenue Of P15,000,000 and expenses of P10,000,000 for the period October 1 to
December 31.
 The carrying amount of the division’s net assets on December 31,2022 was P56,000,000 and the fair
value less cost of disposal was P58,000,000.

The sale contract required Zebra to terminate certain employees Incurring an expected termination cost
of P4,000,000 to be paid by December 15, 2023. The income tax rate is 30%.

What amount should be reported as income from discontinued operation for 2022?

a. 7,700,000
b. 8,300,000
c. 9,000,000
d. 6, 300,000

Problem 10

Xavier Company has three segments, A, B and C. Segment C, the closing division, is deemed inconsistent
with the long-term direction of the entity. Management has decided to dispose of Segment C.

On November 15, 2022, the board of directors of Xavier Company voted to approve the disposal and an
announcement was made. On that date the carrying amount of Segment C’s net assets was

P90,000,000 and the fair value less cost of disposal was P70,000,000.

Segment C’s revenue and expenses for 2022, respectively, were P50,000,000 and P32,000,000, including
an interest of P5,000,000 attributable to Segment C.

There was no further impairment of assets between November 15 and December 31, 2022.

Before income tax, what amount of income or loss from discontinued Operation should be reported for
2022?

a. 13,000,000 income
b. 18,000,000 income
c. 30,000,000 income
d. 2,000,000 loss

Problem 11

On September 30, 2022, when the carrying amount of the net assets Of a business segment was
P70,000,000, Young Company signed legally binding contract to sell the business segment.

The sale is expected to be completed by January 31, 2023 at a sale price of P60,000,000.
In addition, prior to January 31, 2023, the sale contract obliged Young Company to terminate the
employment of certain employees of the business segment incurring an expected termination cost of
P2,000,000 to be paid on June 30, 2023.

The segment revenue and expenses for 2022 were P40,000,000 and P45,000,000 respectively.

Before income tax, what amount should be reported as loss from discontinued operation for 2022?

a. 17,000,000
b. 12,000,000
c. 15,000,000
d. 7,000.000