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IFRS-5: Non-Current Assets Held for Sale and Discontinued Operations International Financial Reporting Standard 5 (IFRS 5) Deemed to Be Discontinued

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IFRS-5: Non-Current Assets Held for Sale and Discontinued Operations International Financial Reporting Standard 5 (IFRS 5) Deemed to Be Discontinued “The journal is running a series of updates on IFRS, IAS, IFRIC and SIC. The updates mostly collected from different sources of IASB publication, seminars, workshop & IFRS website. This issue is based on IFRS 5 which has been collected, collated & summarized by Mr. Md. Mahabubul Alam FCMA. He has been working as First Assistant Vice President for Al Arafah Islami Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh.” IFRS-5: Non-current Assets Held for Sale and Discontinued Operations International Financial Reporting Standard 5 (IFRS 5) deemed to be discontinued. It is possible to have a Non-current Assets Held for Sale and Discontinued discontinued operation which has no assets held for Operations deals with the measurement and sale. Similarly it is possible to have assets held for presentation in the statement of financial position sale without discontinuing an operation. They can of non-current assets (and disposal groups) held for also occur together. sale. In particular, the IFRS requires assets that meet In this article, we only highlight “Non-current the criteria to be classified as held for sale to be: assets held for sale” section of IFRS-5. a) Measured at the lower of carrying amount and fair value less costs to sell, and depreciation on Classification and Presentation Requirements such assets to cease; and The classification and presentation requirements of b) Presented separately in the statement of IFRS 5 apply to all recognized non-current assets financial position and the results of discontinued and disposal groups of an entity, but certain assets operations to be presented separately in the are not subject to its measurement requirements statement of comprehensive income. and instead continue to be measured in accordance with other Standards. When a company (or another entity) plans to sell an asset and / or stop some part of its business, Non-current assets are assets that do not meet the then it might affect its future cash flows, profitability definition of a current asset. A current asset is an and overall financial situation. Therefore, the users asset that satisfies any of the following criteria: of financial statements, mainly investors, should be a) It is expected to be realized in, or is intended informed about these events. There are two distinct for sale or consumption in, the entity’s normal parts to this IFRS. Both are related and can occur operating cycle; together, but each can also occur independently of b) It is held primarily for the purpose of being the other. “Non-current assets held for sale” deals traded; with the situation where an entity decides that a c) It is expected to be realized within twelve non-current asset (which by definition is held for months after the reporting period; or continuing use in the business) is no longer to be d) It is cash or a cash equivalent asset, unless it is held for continuing use. Rather it is to be sold. As this restricted from being exchanged or used to is an intention rather than an observable fact, strict settle a liability for at least twelve months after controls are laid down by IFRS 5 to regulate when the reporting period. an asset is considered to be “held for sale” and also its accounting treatment. “Discontinued operations” A disposal group is a group of assets to be disposed arise when an entity decides to discontinue a part of of, by sale or otherwise, together as a group in a its business. This part of IFRS 5 is concerned with single transaction and liabilities directly associated separate disclosure of the results of operations with those assets that will be transferred in the THE COST AND MANAGEMENT 60 ISSN 1817-5090, VOLUME-46, NUMBER-02, MARCH-APRIL 2018 transaction. A disposal group may be a group of be met for this to be the case. The two general cash-generating units, a single cash-generating unit, requirements for a non-current asset (or disposal or part of a cash-generating unit. If the group group) to be classified as held for sale are that: includes a cash-generating unit to which goodwill 1. The asset (or disposal group) must be available has been allocated under IAS 36 Impairment of for immediate sale in its present condition subject Assets, or includes an operation within such a cash- only to terms that are usual and customary for generating unit, the associated goodwill is included sales of such assets (or disposal groups); and within the disposal group. 2. Its sale must be highly probable. Measurement Requirements Available for immediate sale: IFRS 5 requires ‘Scoped-out’ non-current assets: The measurement that ‘the asset (or disposal group) must be available requirements of IFRS 5 do not apply to the following for immediate sale in its present condition subject assets [IFRS 5(5)]: only to terms that are usual and customary for sales a) Deferred tax assets (IAS 12 Income Taxes); of such assets (or disposal groups)’. b) Assets arising from employee benefits (IAS 19 Example 1: An entity is committed to a plan to sell Employee Benefits); a manufacturing facility and has initiated actions to c) financial assets within the scope of IAS locate a buyer. At the plan commitment date, there 39 Financial Instruments: Recognition and is a backlog of uncompleted customer orders. Measurement; • The entity intends to sell the manufacturing facility d) Non-current assets that are accounted for in with its operations. Any uncompleted customer accordance with the fair value model in IAS 40 orders at the sale date will be transferred to the Investment Property; buyer. The transfer of uncompleted customer e) Non-current assets that are measured at fair orders at the sale date will not affect the timing value less estimated point-of-sale costs in of the transfer of the facility. The criterion in IFRS accordance with IAS 41 Agriculture; and 5 would be met at the plan commitment date. f) Contractual rights under insurance contracts as • The entity intends to sell the manufacturing defined in IFRS 4 Insurance Contracts. facility, but without its operations. The entity does Current assets can be caught by the requirements not intend to transfer the facility to a buyer until of IFRS 5, but only when they are part of a disposal after it ceases all operations of the facility and group. Thus, in particular: eliminates the backlog of uncompleted customer a. where a current asset is part of a disposal group orders. The delay in the timing of the transfer that also contains scoped-in non-current assets, of the facility imposed by the entity (seller) the disposal group as a whole will be subject both demonstrates that the facility is not available for to the measurement and to the classification and immediate sale. The criterion in IFRS 5 would not presentation requirements of IFRS 5; be met until the operations of the facility cease, b. where a current asset is part of a disposal group even if a firm purchase commitment for the future that does not contain any scoped-in noncurrent transfer of the facility were obtained earlier. assets, the disposal group as a whole will be Highly probable: specific conditions: The Standard subject to the classification and presentation defines ‘highly probable’ as meaning ‘significantly requirements of IFRS 5, but not to the Standard’s more likely than probable’, where ‘probable’ measurement requirements; and means ‘more likely than not’. A number of specific c. a current asset being sold as an individual asset conditions must be satisfied for the sale of a non- (i.e. not as part of a disposal group) will never be current asset (or disposal group) to qualify as highly classified as held for sale under IFRS 5. probable: Classification of non-current assets (or disposal • The appropriate level of management must be groups) as held for sale committed to a plan to sell the asset (or disposal group); The overall principle of IFRS 5 is that a non-current asset (or disposal group) should be classified as held • An active program to locate a buyer and for sale if its carrying amount will be recovered complete the plan must have been initiated; principally through a sale transaction rather than • The asset (or disposal group) must be actively through continuing use. The Standard specifies marketed for sale at a price that is reasonable in certain requirements and conditions that must relation to its current fair value; and THE COST AND MANAGEMENT 61 ISSN 1817-5090, VOLUME-46, NUMBER-02, MARCH-APRIL 2018 • The sale should be expected to qualify for impose conditions on the transfer of the asset recognition as a completed sale within one (or disposal group) that will extend the period year from the date of classification, and actions required to complete the sale, and: required to complete the plan should indicate that • actions necessary to respond to those conditions it is unlikely that significant changes to the plan cannot be initiated until after a firm purchase will be made or that the plan will be withdrawn. commitment is obtained; and Example 2: At the year end, an entity’s board of • a firm purchase commitment is highly probable directors has approved a plan to sell a non-current within one year. asset. The eventual disposal requires approval from a b) An entity obtains a firm purchase commitment majority of the entity’s shareholders through a formal and, as a result, a buyer or others unexpectedly vote which will take place after the year end. At the impose conditions on the transfer of a non-current year end, a majority of the entity’s shareholders asset (or disposal group) previously classified as have provided the entity with signed irrevocable held for sale that will extend the period required agreements stating that they will vote their shares in to complete the sale; and: favor of the disposal.
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