The ‘OBJECTIVE’ of IFRS 5 is to specify the ‘accounting‘ for Assets Held for Sale and the ‘presentation and disclosure‘ of Discontinued Operations.
In particular, the IFRS requires:
- 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
- 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‘ (SOCI).
Table of Contents
IFRS 5 Effective Date
An entity shall apply this IFRS for annual periods beginning on or after 1 January 2005.
Earlier application is ‘ENCOURAGED’.
If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact.
IFRS 5 – Scope
The ‘Classification and Presentation’ Requirements of this IFRS apply to all recognized non‑current assets and to all disposal groups of an entity.
The ‘Measurement’ Requirements apply to all recognized non‑current assets and disposal groups.
IFRS 5 – Key Terms
1. Disposal Group
| A ‘Disposal Group‘ is a group of assets, possibly with some associated liabilities which an entity intends to dispose of in a single transaction. |
| Measurement-Basis is APPLIED to the group as a whole. The entire group is measured at LOWER of its: – Carrying amount; AND – Fair value (FV) less costs to sell. |
| Impairment loss (if any) reduces the carrying amount of non-current assets in the disposal group in the order of allocation required by IAS 36. |
2. Abandoned Asset
Non-current asset (or disposal group) that is to be ‘abandoned‘ Must NOT be classified as held for sale but may be CLASSIFIED as discontinued once abandoned.
Classification of Non-Current Assets (or Disposal Group) Held for Sale
It specifies that 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.
The following CRITERIA to be Met:
- The asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group);
- The sale Must be highly probable i.e. sale is expected to be completed within 12 months from the classification date;
- Management is committed to a plan to sell the asset (or disposal group);
- Asset Must be actively marketed for the sale at a reasonable price in relation to its current fair value (FV);
- Actions Required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn.
| Held for Distribution to Owners Classification |
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| ‘Classification Criteria’, ‘Presentation’ and ‘Measurement’ Requirements of Non-Current Asset (disposal group) held for sale also apply to a non-current asset (or disposal group) that is classified as held for distribution to owners. |
1. Measurement
1.1 Immediately Prior to Classification as Held for Sale
Carrying amount of the asset is Measured in accordance with applicable IFRS (e.g. IAS 16, IAS 38 etc).
1.2 After Classification as Held for Sale
It is Measured at LOWER of carrying amount and fair value less costs to sell.
However, following assets are covered under other IFRSs are Scoped Out of IFRS 5 [‘Disclosure Requirements’ still to be complied with]:
- Deferred tax assets (IAS 12 – Income Taxes)
- Assets arising from employee benefits (IAS 19 – Employee Benefits)
- Financial assets in the scope of IAS 39 / IFRS 9 – Financial Instruments
- Non-current assets at fair value (FV) Model (IAS 40 – Investment Property)
- Non-current assets Measured at fair value (FV) less estimated point of sale costs (IAS 41 – Biological Assets)
- Contractual rights under insurance contracts (IFRS 4 – Insurance Contracts)
1.3 Impairment
| Impairment Must be considered BOTH at the time of classification as held for sale and subsequently. |
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| – Immediately prior to classifying an asset as held for sale, Impairment is Measured and recognized in accordance with the applicable IFRS. |
| – After classification of asset held for sale, any impairment loss will be recognized in profit or loss (P&L) only. |
1.4 Reversal of Impairment
Subsequent increases in fair value (FV) can be recognized in P&L to the extent that is NOT in excess of the cumulative impairment losses that have been recognized with this IFRS or IAS 36.
1.5 No Depreciation
IFRS 5 states that Non-current assets (or disposal group) classified as held for sale are NOT depreciated.
IFRS 5 – Presentation and Disclosure
| (a) Non-current assets (or disposal group) held for sale are disclosed separately on the face of the balance sheet. If there are any liabilities, these are disclosed separately from other liabilities. |
| (b) Description of the nature of assets (or disposal group) held for sale and facts and circumstances surrounding the sale. |
| (c) Gain or loss resulting from initial or subsequent fair value (FV) Measurement of non-current asset held for sale or disposable group and if NOT presented separately in P&L account, the line item that includes that gain or loss. |
| (d) Prior year balances in the balance sheet are NOT Re-classified as held for sale. |
| (e) If applicable, the re-portable segment (IFRS 8) in which the non-current asset of the disposable group is presented. |
Changes to the ‘Plan of Sale’ – Classification Criteria No Longer Met
If IFRS 5 ‘classification criteria‘ NO longer met, entity shall cease to classify the asset (or disposal group) as held for sale and shall Measure it at LOWER of:
- Its carrying amount before such asset was classified as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized if the asset has NOT been classified as held for sale; AND
- Its recoverable amount at the date of the subsequent decision not to sell.
[Above adjustment to ‘carrying amount‘ of such asset shall be recorded in P&L.]
Discontinued Operation
| A component of an entity that either has been disposed of or is classified as held for sale and EITHER: |
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| – 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; |
| – Is a Subsidiary acquired exclusively with a view to resale and the disposal involves loss of control. |
1. Presentation of Discontinued Operation
Results of discontinued operations are ‘Presented Separately‘ from results of continuing and ongoing activities.
1.1 Statement of Financial Position
Non-current assets (or disposal group) are classified as held for sale separately from other assets.
The SAME applies for liabilities of disposal group classified as held for sale.
1.2 Statement of Comprehensive Income
A ‘Single amount‘ comprising the total of:
- Post-tax profit or loss of discontinued operations; AND
- Post-tax gain or loss recognized on the Measurement to fair value less costs to sell or on the disposal of assets or disposal groups.
The analysis of ‘Single Amount’ (i.e. revenue, expense, Profit before tax, tax etc.) shall be reported in the notes or in ‘Statement of Other Comprehensive Income’ (OCI) in a section DISTINCT from continuing operations.
1.3 Statement of Cash Flows
Net cash flows attributable to the operating, investing and financing activities of discontinued operation is separately presented on the face of the ‘Statement of Cash Flows’ (SOCI) or disclosed in the notes.
Note – [IFRS 5 prohibits ‘retroactive classification‘ as a discontinued operation, when discontinued criteria are Met AFTER the end of reporting period.]
Withdrawal of IAS 35
IFRS 5 ‘supersedes‘ IAS 35 Discontinuing Operations.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)