The ‘OBJECTIVE’ of IFRS 5 is to specify the ‘Accounting’ for Assets Held for Sale and the ‘Presentation and Disclosure’ of Discontinued Operations.
01 Overview of IFRS 5
IFRS 5 prescribes the accounting treatment for non-current assets (or disposal groups) held for sale and the presentation and disclosure of discontinued operations.
Issued by the International Accounting Standards Board (IASB), IFRS 5 establishes a distinct classification category “held for sale” that triggers different accounting, measurement, and disclosure requirements compared to assets still in active use. The core principle is that when management commits to selling an asset rather than continuing to use it, the asset should be measured at the lower of its carrying amount and fair value less costs to sell (FVLCTS), and presented separately in the statement of financial position.
IFRS 5 also governs the reporting of discontinued operations, a separate major line of business or geographical area that has been disposed of or is classified as held for sale. Results from discontinued operations must be presented separately in profit or loss, enabling users of financial statements to clearly distinguish between ongoing and exiting activities.
IFRS 5 ensures that users of financial statements can clearly identify assets that management has committed to sell rather than continue using, and can separately assess the performance of continuing versus discontinued operations.
02 Scope & Applicability
IFRS 5 applies to all recognised non-current assets and all disposal groups i.e. a group of assets to be disposed of together as a unit, along with any directly associated liabilities. The standard applies irrespective of whether the entity holds these assets for investment purposes or operational purposes.
Assets Excluded from Measurement Requirements
Certain assets are excluded from the measurement provisions of IFRS 5, though they still follow its classification and presentation requirements.
- Deferred tax assets – governed by IAS 12
- Assets arising from employee benefits – governed by IAS 19
- Financial assets within the scope of IFRS 9
- Investment property measured at fair value under IAS 40
- Agricultural assets measured at fair value less costs to sell under IAS 41
- Contractual rights under IFRS 17 (Insurance Contracts)
03 Classification as Held for Sale
IFRS 5 sets out strict criteria that must all be met before an asset or disposal group can be classified as held for sale. Classification is not a management intention alone, it requires objective evidence of a firm commitment to a near-term sale.
Committed plan: Management must be committed to a plan to sell the asset or disposal group.
Available for immediate sale: The asset must be available for immediate sale in its present condition, subject only to terms that are usual and customary.
Active programme: An active programme to locate a buyer must already be in place.
Highly probable: Completion of the sale within 12 months of classification must be highly probable.
Actively marketed: The asset is being marketed at a price that is reasonable relative to its current fair value.
Unlikely to be withdrawn: Actions required to complete the plan make it unlikely the plan will be significantly changed or withdrawn.
The sale must be expected to qualify for recognition as a completed sale within 12 months from the date of classification. Extensions beyond 12 months are permitted only in limited circumstances where the delay is caused by events or circumstances beyond the entity’s control and there is sufficient evidence the entity remains committed to its plan to sell.
Held for Distribution to Owners
IFRS 5 was amended to extend its scope to non-current assets held for distribution to owners (e.g., demergers or dividends-in-specie). The criteria mirror those for held for sale: the asset must be available for immediate distribution, the distribution must be highly probable, and it must be expected to be completed within 12 months.
04 Measurement
At the point of reclassification, an entity first applies the relevant IFRS to remeasure the asset (for example, applying IAS 36 impairment testing). Thereafter, the asset is carried at the lower of its carrying amount and FVLCTS until it is sold.
Key Measurement Consequences
Non-current assets classified as held for sale are no longer depreciated or amortised from the date of classification.
Any excess of carrying amount over FVLCTS is recognised as an impairment loss in profit or loss. Subsequent increases in FVLCTS are recognised as gains, but not exceeding cumulative impairment losses previously recognised under IFRS 5.
For disposal groups, any impairment loss is allocated first to goodwill, then to remaining non-current assets pro-rata based on carrying amounts. Current assets are excluded from this allocation.
If the criteria are no longer met, the asset is remeasured at the lower of: (a) its recoverable amount, and (b) the carrying amount it would have had if it had never been classified as held for sale; adjusted for any depreciation, amortisation, or revaluations that would have been recognised.
Measurement on Reclassification to Held for Sale
An entity reclassifies a factory (carrying amount: $8.0m) as held for sale. The factory’s fair value is estimated at $7.5m and incremental costs to sell (legal fees, agent commission) are $0.3m, giving an FVLCTS of $7.2m.
→ The factory is written down from $8.0m to $7.2m. An impairment loss of $0.8m is recognised in profit or loss immediately. Depreciation ceases on the date of reclassification.
05 Presentation in Financial Statements
Statement of Financial Position
Non-current assets (or disposal groups) classified as held for sale must be presented separately from other assets as a single line item. They must be presented as current assets, reflecting the intent to recover value through sale rather than continued use. The liabilities of a disposal group must similarly be presented separately from other liabilities and must not be offset against the assets.
Comparative Periods – Balance Sheet
IFRS 5 explicitly states that prior-period comparatives in the statement of financial position are not restated to reflect the classification as held for sale. This is an important distinction from many other reclassification requirements under IFRS.
Even if the asset was previously classified as non-current (e.g., property, plant and equipment), once classified as held for sale it moves to current assets on the balance sheet. This can have a material effect on ratios such as the current ratio.
Discontinued Operations – Profit or Loss
A component qualifies as a discontinued operation when it represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such an area, or is a subsidiary acquired exclusively with a view to resale.
| Presentation Item | Location in Financial Statements | Comparative Restatement |
|---|---|---|
| Post-tax profit/loss of discontinued operation | Single line in profit or loss, below continuing operations | Prior periods restated |
| Post-tax gain/loss on measurement or disposal | Included within the single discontinued operations line | Prior periods restated |
| Assets held for sale | Separate line in current assets on balance sheet | Not restated |
| Liabilities of disposal group held for sale | Separate line in current liabilities on balance sheet | Not restated |
| Cash flows of discontinued operation | Separately disclosed in notes or on face of cash flow statement | Prior periods restated |
06 Disclosure Requirements
IFRS 5 requires extensive disclosures to enable users of financial statements to evaluate the financial effects of assets held for sale and discontinued operations.
Disclosures for Assets / Disposal Groups Held for Sale
- Description of the non-current asset or disposal group
- Description of the facts and circumstances of the expected sale and its expected manner and timing
- Gain or loss recognised in the period (if not separately presented on the face of the income statement)
- The reportable segment in which the asset is presented, if applicable (per IFRS 8)
Disclosures for Discontinued Operations
- Revenue, expenses, and pre-tax profit or loss attributable to the discontinued operation
- The related income tax expense as required by IAS 12
- The gain or loss on disposal and the related income tax expense
- Net cash flows attributable to operating, investing, and financing activities
- Net assets of the discontinued operation at the balance sheet date
Unlike the balance sheet, the income statement and cash flow disclosures for discontinued operations must be presented for all prior periods shown in the financial statements. This allows users to understand the trajectory of the continuing business in isolation.
07 IFRS 5 vs US GAAP (ASC 360 / ASC 205-20)
While IFRS 5 and US GAAP share conceptual similarities in their treatment of held-for-sale assets and discontinued operations, there are meaningful differences that multinational entities and GAAP converters must navigate carefully.
| Topic | IFRS 5 | US GAAP (ASC 360 / 205-20) |
|---|---|---|
| Measurement basis | Lower of carrying amount and FVLCTS | Lower of carrying amount and fair value less cost to sell |
| Depreciation on classification | Ceases immediately upon classification | Ceases immediately upon classification |
| Discontinued operation definition | Separate major line of business or geographical area only | Broader: any component with operations and cash flows that can be clearly distinguished |
| Balance sheet comparatives | Not restated | Not restated |
| Income statement comparatives | Restated for all periods shown | Restated for all periods shown |
| Upward revaluation of held-for-sale assets | Permitted up to cumulative IFRS 5 impairment losses recognised | Not permitted for long-lived assets under ASC 360 |
| Equity method investments held for sale | IAS 28 applies; IFRS 5 does not apply to equity-accounted investments | ASC 323 continues to apply; specific guidance under ASU 2014-08 |
08 Common Application Issues & Judgement Areas
1. Assessing “Highly Probable”
The “highly probable” threshold demands more than management intention. Entities must demonstrate that a sale is significantly more likely than not, with concrete steps taken to locate a buyer at a realistic asking price. A binding sale agreement is strong evidence but not strictly required under IFRS 5.
2. Extending the 12-Month Period
This is one of the most frequently questioned areas in practice. The extension is only permitted when the delay is caused by events beyond the entity’s control, such as unexpected regulatory approval requirements or an unanticipated market deterioration and the entity has remained demonstrably committed to its disposal plan throughout.
3. Defining Costs to Sell
Costs to sell include only incremental direct costs; legal fees, Broker commissions, and transfer taxes. They explicitly exclude financing costs, income tax charges, and future costs associated with operating the asset until disposal. Misclassifying running costs as “costs to sell” is a common error.
4. Subsidiary Acquired Exclusively for Resale
Under IFRS 5.12, when a subsidiary is acquired with the intention of selling it within 12 months, the held-for-sale criteria must be met at the acquisition date. In such cases, the subsidiary is consolidated but immediately classified as a disposal group held for sale and measured at FVLCTS rather than being fully fair-valued under IFRS 3.
Failed Sale Process – Reversal of Classification
An entity classified a property division as held for sale in Q1. By Q4, the sale fell through due to the buyer’s inability to secure financing. The entity re-evaluates: is it still committed to a near-term sale?
If a new buyer is being actively sought and a revised sale agreement is expected within the extended period, held-for-sale classification may continue. If management decides to recommence operations using the division, reclassification out of held for sale is required. The asset is then remeasured at the lower of its recoverable amount and the carrying amount it would have had absent the prior classification.
09 Frequently Asked Questions
No. Financial assets within the scope of IFRS 9 are explicitly excluded from the measurement requirements of IFRS 5. However, a disposal group containing financial assets alongside other assets can still be classified as held for sale under IFRS 5, with the financial assets within that group continuing to be measured under IFRS 9.
No. Goodwill cannot be classified as held for sale in isolation, it must always be part of a disposal group. When a disposal group is classified as held for sale, any goodwill allocated to that group is included within the disposal group for measurement purposes, with impairment allocated to goodwill first.
A disposal group is a set of assets and associated liabilities to be disposed of together in a single transaction. A discontinued operation is a higher-level concept representing a separate major line of business or geographical area. All discontinued operations typically involve disposal groups, but not all disposal groups constitute discontinued operations for example, disposing of a single factory would create a disposal group but not a discontinued operation.
When a foreign operation that has been classified as a discontinued operation is disposed of, the cumulative exchange differences previously recognised in other comprehensive income (OCI) are reclassified to profit or loss as part of the gain or loss on disposal, in accordance with IAS 21. This reclassification forms part of the single discontinued operations line in profit or loss.
Yes. Assets held for distribution to owners are measured at the lower of carrying amount and fair value less costs to distribute, not costs to sell. Costs to distribute are the incremental costs directly attributable to the distribution. Additionally, the distribution must be highly probable and expected to be completed within 12 months of classification.
10 Summary & Key Takeaways
IFRS 5 introduces a distinct accounting framework that kicks in the moment management commits to selling rather than continuing to use an asset. Its influence ripples across measurement, presentation, and disclosure affecting balance sheets, income statements, and cash flow statements simultaneously.
Classification
Six strict criteria must all be met, including management commitment, availability for immediate sale, active marketing, and highly probable completion within 12 months.
Measurement
Lower of carrying amount and FVLCTS. Depreciation and amortisation cease immediately on classification. Impairment losses recognised in profit or loss.
Presentation
Separate current asset / liability lines on balance sheet – no comparative restatement. Single line in profit or loss for discontinued operations, prior periods restated.
Disclosure
Comprehensive disclosures covering facts and circumstances, cash flows by activity, segment information, and a full analysis of the results of discontinued operations.
(Qualified) Chartered Accountant – ICAP
Master of Commerce – HEC, Pakistan
Bachelor of Accounting (Honours) – AeU, Malaysia