Non-Current assets held for sale and

discontinued operation (IFRS 5)

Prepared by : Imrul Kayas, ACA,ACGA
Discussion Topic :
1. Concept regrading Non current asset held for sale and discontinuation
operation
2. Conditions for classification as held for sale
3. Measurement of non-current asset held for sale
4. Discontinued operation
5. Changes to a plan of sale
6. Disclosures
Non-Current assets held for sale and discontinued
operation
- A Non-Current asset or disposal group should be classified as held
for sale if its carrying amount will be recovered principally through
sale rather than continuing use.
- A disposal group is a group of assets (and possibly liabilities) that the
entity intends to dispose of in a single transection.
- IFRS 5 applies to disposal groups as well as to individual Non-Current
assets that are held for sale.
- Subsidiaries acquired exclusively with a view to resale are classified
as held for sale, but they meet the condition for classification as held
for sale.
Conditions for classification as held for sale:
 IFRS 5 Requires that the following conditions to be met before an
asset or disposal group can be classified as held for sale.
 -The item is available for immediate sale in its present condition
 -The sale is highly probable
 (1) management is committed to a plan to sell the item.
 (2) The item is being actively marketed at a reasonable price in
relation to its current fair value.
 -The sale is expected to be completed within one year from the date
of classification.
 -It is unlikely that the plan will change significantly or be withdrawn.
Example 1:
Habib & Co is preparing its financial statements for the year ended 31 December
2015.
a) On 1st December 2015, the entity became committed to a plan to sell a surplus
office property and has already found a potential buyer. On 15 December 2015 a
survey was carried out and it was discovered that the building had dry rot and
substantial remedial work would be necessary. The buyer is prepared to wait for the
work to be carried out but the property will not be sold until the problem has been
rectified. This is not expected to occur until summer 2016.
Required:
Can the property be classified as held for sale?
Solution:
IFRS 5 states that in order to be classified as ‘held for sale’ the
property should be available for immediate sale in its present
condition. The property will not be sold until the work has been
carried out, demonstrating that the facility is not available for
immediate sale. Therefore, the property cannot be classified as held
for sale.
Example 2:
A subsidiary entity, B, is for sale at a price of taka 3 million. There has
been some interest from prospective buyers but no sale as of yet, one
buyer has made an offer of the 2 million but the director of the HABIB
& CO rejected the offer. The directors have just received advice from
their accountants that the fair value of the business is the Tk 2.5
million. They have decided not to reduce the sale price of B at the
moment.
Required: Can the subsidiary be classified as held for sale?
Solution:
The subsidiary B does not meet the criteria for classification as held
for sale. Although, actions to locate a buyer are in place, the
subsidiary is not for sale at a price that is reasonable compared with
its fair value. The fair value of subsidiary is Tk 2.5 million but it is
advertised for sale at Tk 3 million. It cannot be classified as held for
sale until the sales price is reduced.
Measurement of non-current asset held for sale:
Measurement of non-current asset held for sale: Non-current assets
that qualify as held for sale should be measured at the lower of:
 -their carrying amount and - fair value less costs to sell
 Held for sale non-current assets should be:
 -Presented separately on the face of the statement of financial
position under current assets.
 - Not depreciated.
Example 3 :
On 1st January 2011, AB acquires a building for Tk 2,00,000 with an
expected life of 50 years. On 31 December 2014, AB puts the
building up for immediate sale. Costs to sell the building are
estimated at Tk 10,000.
Required:
Outline the accounting treatment of the above if the building had a
fair value at 31st December 2014 of
 a) Tk 220,000
 b) Tk 110,000
Solution:
Until 31st December 2014 the building is a normal non-current asset and its
accounting treatment is prescribed by IAS 16. The annual depreciation charge was Tk
4000 (2,00,000/50)
Before reclassification, the carrying amount was (2,00,000- 4000x4) = Tk 184,000.
 a) On 31 December 2014, the building is reclassified as a non-current asset held for
sale. It is measured at the lower of carrying amount (Tk184,000) and fair value less
costs to sell. This means that the building will continue to be measured at Tk
1,84,000.
 b) On 31 December 2014, the building is reclassified as a non-current asset held for
sale. It is measured at the lower of carrying amount (Tk 184,000) and fair value less
costs to sell (Tk110,000-Tk 10,000), i.e. Tk 1,00,000. The building will therefore be
measured at the 1,00,000 as at 31st December 2014. An impairment loss of Tk
84,000 (Tk184,000-100,000) will be charged to the statement of profit or loss.
Discontinued Operations:
A discontinued operation is 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.
Discontinued operations are required to be shown separately in order to help users to predict future
performance, i.e. based upon continuing operations.
An entity must disclose a single amount in the face of the statement of profit or loss, comprising the total of:
 -the post-tax profit or loss of discontinued operation and
 -the post-tax gain or loss recognized on the measurement to fair value less costs to sell, or on the disposal, of
the fair value less costs to sell, or on the disposal of the assets constituting the discontinued operation.
An analysis of this single amount must be presented either in the notes or on the face of the statement of profit
or loss.
 The analysis must disclose:
- The revenue, expenses and plc tax profit or loss of discontinued operations.
- The related income tax expense.
- The gain or loss recognized on the measurement to fair value less costs to sell, or on the disposal of the
assets constituting the discontinued operation.
Proforma of discontinued operation
Statement of profit or loss presentation (with a discontinued operation).
2015
Continuing operations: Tk
Revenue x
Cost of sales (x)
Gross profit x
Distribution costs (x)
Administrative expenses (x)
Profit from operations x
Finance costs (x)
Profit before tax x
Income tax expenses (x)
Profit from the period from discontinued operation x
Discontinued operations:
Profit from the period from discontinued operations x
Total profit for the period x

 The analysis of this single amount would be given in the notes.

 Alternatively, the analysis could be given on the face of the statement of profit or loss, with separate columns
for continuing operations discontinuing operations and total amounts.
Example:4
Mr. x produced cards and sold roses. However, half way through the year ended 31 march 2016. The lose
business was closed and the assets sold off, incurring loses on the disposal of non-current assets of tk.
76000 and redundantly costs of tk. 37000. The directors recognized the continuing business at a cost of tk.
98000.
Trading results may be summarized as follows:
Card Roses
Tk. 1000 Tk. 1000
Revenue 650 320
Cost of sales 320 150
Distribution 60 90
Administration 120 110

Other trading information to be allocated to continuing operation is as follows:

Total
Tk. 1000
Finance costs 17
Tax 31
(a) Draft the statement of profit or loss for the year ended 31 march 2016
(b) Explain how an IFRS 5 discontinued operations presentation can make information more useful to the
users of financial statements.
Solution
(a)Working: Calculation of profit or loss of the discontinued operation.
Tk. 1000
Revenue 320
Cost of sales (150)
Gross profit 170
Administration expense (110)
Distribution expense (90)
Operating cost (30)
Loss on disposal (76)
Redundancy costs (37)
Overall loss (143)

The above information shown in the notes to the accounts as disclosure.

Solution ( continuation)
Mr. x
Statement of profit or loss
For the year ended 31 march 2016
Continuing operations:
Revenue 650
Cost of sales (320)
Gross profit 330
Administrative costs (120)
Distribution costs (60)
Operating profit 150
Reorganization costs (98)
52
Finance costs (17)
Profit before tax 35
Income taxes (31)
Profit for period from continuing operation 4
Discontinued operations:
Loss for period from discontinued operations (143)
Loss for period from total operation (139)
Solution ( continuation)
b) IFRS 5 presentation

When a business segment of geographical area has been classified

as a discontinued operation, IFRS 5 requires a separate presentation
to be made on the face of the statement of profit or loss. This
separate presentation enables users to immediately identify that
the performance relating to the discontinued segment or area will
not continue in the future. Hence making the information more
relevant to users decision making. The users can choose to include
the information when evaluating past performance of the company
or ignore it when forecasting future outcomes
Changes to a plan of sale:
 If the sale does not take place within one year, an asset or disposal group can still be
classified as held for sale if:
- The delay has been caused by events or circumstances beyond the entity’s control.
- There is sufficient evidence that the entity is still committed to the sale.
 If the criteria for held for sale are no longer met, the entity must cause to classify the asset
or disposal group as held for sale. The assets or disposal group must be measured at the lower
of:
- Its carrying amount before it was classified as held for sale adjusted to any depreciation.
Amortization or revaluations that would have been recognized had it not been classified as
held for sale.
- Its recoverable amount at the date of the sub-sequent decision not to sell.
 Any adjustment required is recognized in profit or loss as a gain or loss from
continuing operation.
Disclosure:
- A description of the non-current asset for disposal group.
- A description of the facts and circumstances of the sale or expected sale.