Chapter 20

CHAPTER 20
NON-CURRENT ASSETS HELD FOR

SALE AND DISCONTINUED OPERATIONS
Connolly International Financial Accounting and Reporting 4th Edition
20.1 INTRODUCTION
Non-current assets typically held for use within the

business rather than for sale
NRV generally of little interest to users

Logical that IFRS 5 deals with two issues that are often
related (i.e. non-current assets held for sale and
discontinued operations)
20.2 IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS
Objective
To improve the information about assets and disposal groups

that are about to be disposed of and discontinued operations
It does this by specifying the:

Requirements for the classification, measurement and
presentation of non-current assets held for sale (i.e. such

assets should be presented separately on the face of the
SFP)
Rules for the presentation of discontinued operations (i.e.

results of discontinued operations should be presented
separately in the SPLOCI)
Scoped-out assets
Measurement provisions of IFRS 5 do not apply to:
Deferred tax assets (IAS 12 See Chapter 13)
Financial assets (IFRS 9 See Chapter 25)
Agricultural non-current assets measured at fair value

less costs (IAS 41 See Chapter 34)
Assets arising from employee benefits (IAS 19 See

Chapter 17)
Investment properties measured using fair value model

(IAS 40 See Chapter 5)
20.3 NON-CURRENT ASSETS HELD FOR SALE
The term refers to an individual asset or group of assets

An individual non-current asset is regarded as held for
sale if its carrying amount will be recovered principally
through a sale transaction rather than through continuing
use
A disposal group is a group of assets to be disposed of
together as a single transaction together with liabilities
directly associated with those assets that will be
transferred in the transaction
The group includes goodwill acquired in a business
combination if the group is a cash-generating unit
Financial reporting implications arise in terms of how the
asset / disposal group is presented and measured
Classification and measurement
Classification
Classify as held for sale if carrying amount will be recovered
principally through a sale transaction rather than through

continuing use
Asset or disposal group must be available for immediate sale
in its present condition and the sale must be highly probable
(i.e. management must be committed to the disposal)
Period to complete sale may extend beyond 1 year due to
circumstances outside the entitys control
Measurement
Lower of the carrying amount and FVLCS
When the sale is expected to occur > 1 year, costs to sell must
be measured at their present value
Do not depreciate or amortise while classified as held for sale
Measurement immediately prior to re-classification as held

for sale
Immediately before the initial classification of the asset as

held for sale, the carrying amount of the asset is measured
in accordance with applicable IFRS (e..g. IAS 16, IAS 40)
Any impairment loss is recognised in SPLOCI P/L unless

the asset had been measured at a revalued amount under
IAS 16 or IAS 38, in which case the impairment is
accounted for as a revaluation decrease
Measurement upon re-classification as held for sale
Measure at lower of:

(a) carrying value; and
(b) FVLCS
Any impairment arising upon re-classification as held for

sale as a result of (b) being less than (a) is recognised in
SPLOCI P/L
See Example 1
Example 1
A property is purchased for 500,000 on 1 January 2011. The useful life of
the property is 20 years (zero residual value). The property is measured
subsequently at depreciated historical cost.
On 30 June 2013, it is decided that the property is to be classified as held for
sale (classification criteria are met).
An impairment assessment on 30 June 2013 determines the recoverable
value (based on value in use) to be 400,000.
The fair value less costs to sell on 30 June 2013 is 390,000.
Requirement
What is the carrying value of the property immediately before reclassification as held for sale on 30 June 2013?
What are the required accounting entries in 2013 in respect of the reclassification of the asset as held for sale?
Example 1 Solution
a)
Cost
500,000
Depreciation 2011
(25,000)
Depreciation 2012
(25,000)
Depreciation six months 2013
(12,500)
Carrying value at 30 June 2013 prior to

impairment assessment
437,500
Impairment charge 2013
(37,500)
400,000
Example 1 Solution
b)
Carrying value at date of re-classification as held

for sale
400,000
Fair value less costs to sell
390,000
Impairment charge 2013
10,000
Measurement after re-classification as held for sale
No depreciation or amortisation charges (even if asset is

still used)
At subsequent reporting dates, re-measure to FVLCS
Impairment losses are recognised in SPLOCI P/L

Gains are recognised for increases in FVLCS but not in
excess of cumulative impairment losses recognised in
accordance with IFRS 5 or previously in accordance
with IAS 36
See Examples 2 and 3
Example 2
At 30 June 2013, a decision is taken to classify property as held
for sale (criteria are met). At the time of classification, the
carrying value is 250,000 and the FVLCS is 260,000.
Upon re-classification, there is no impairment and the property
is initially classified as held for sale at 250,000. There is no
depreciation of the property after the date of re-classification.
At the next reporting date, 31 December 2013, the market has
declined and the FVLCS is determined to be 240,000. An
impairment loss of 10,000 is recognised in SPLOCI P/L.
The property is subsequently sold for 270,000. A gain on
disposal of 30,000 is recognised in SPLOCI P/L.
Example 3
At 30 June 2013, a decision was taken to classify property as
held for sale (criteria are met). The property was originally
acquired for 400,000. Cumulative depreciation to 30 June 2013
amounted to 110,000. An impairment loss of 35,000 was also
recognised at 30 June 2013 because VIU was determined at
that date to be 255,000.
Upon re-classification as held for sale, the FVLCS was assessed
at 250,000. An additional impairment charge therefore arose
under IFRS 5 and the carrying value of the property was
250,000.
At the next reporting date, 31 December 2013, the FVLCS is
reassessed at 265,000. The full amount of the gain, 15,000, is
recognised in SPLOCI P/L because it is less than the
cumulative impairment losses recognised to date (40,000).
Example 3 (Contd)
If however, at 31 December 2013, the FVLCS was 300,000, then the
gain of 50,000 would exceed the cumulative impairment losses
(40,000).
In this circumstance, only 40,000 of the gain could be recognised in
SPLOCI P/L and the carrying value of the property would be
290,000. If the property was subsequently sold for 300,000, a gain
on disposal of 10,000 would be recognised at that point.
Changes to a plan of sale
When the held for sale criteria are no longer met, the
asset should be removed from the held for sale category
Re-classify and re-measure at lower of:
Carrying amount before the asset was classified as

held for sale, adjusted for depreciation, amortisation,
revaluations that would have been recognised had the
asset not been classified as held for sale; and
Recoverable amount at the date of change to plan

See Example 4
Example 4
A property is purchased for 500,000 on 1 January 2011. The useful life of
the property is 20 years (zero residual value). The property is measured
subsequently at depreciated historical cost.
On 31 December 2012, it is decided that the property is to be classified as
held for sale (classification criteria are met).
An impairment assessment on 31 December 2012 determines the
recoverable value (based on VIU) to be 400,000.
The FVLCS on 31 December 2012 is 390,000.
At 31 December 2013, there is a change in plans and the property no longer
meets the criteria to be classified as held for sale.
There is no change in the useful life of the property at any point. The
recoverable value at 31 December 2013 is 385,000.
Requirement
Show how the property would be accounted for in 2012 and 2013.
Example 4 Solution
2012
Cost 1 January 2011
Depreciation 2011
Depreciation 2012
Carrying value prior to impairment
500,000
(25,000)
(25,000)
450,000
Impairment charge at 31 December 2012
(50,000)
Carrying value prior to re-classification as held for

sale
400,000
Impairment charge after re-classification as held for

(10,000)
sale
Carrying value at 31 December 2012 (classified as
held for sale
390,000
Example 4 Solution
2013
Carrying value prior to re-classification as held for

sale at 31 December 2012
Depreciation charge for 2013 would have been
Carrying value at 31 December 2013 would have
been
Actual carrying value at 31 December 2013
Impairment charge upon re-classification as noncurrent asset (held for use) at 31 December 2013
400,000
(22,222)
377,778
390,000
(12,222)
Non-current assets to be abandoned
Held for sale includes those to be abandoned / scrapped
See Chapter 20, Examples 20.1 and 20.2
Example 20.1: Abandoned

In October 2012 an entity decides to abandon all of its cotton
mills (major line of business). All work stops during 2013.
For 2012 the results and cash flows should be treated as

continuing operations but in 2013 the entity discloses the
information for discontinued operations including a restatement
of any comparative figures.
Example 20.2: Not abandoned

Entity ceases to use a manufacturing plant because demand
has declined. However, the plant is maintained in workable
condition and it is expected to be brought back into use if
demand picks up.
It is not, therefore, abandoned and the entity may not, for

example, stop charging depreciation or treat it as held for sale
Classification of a non-current assets or disposal group as

held for sale
Asset is available for immediate sale in its present

condition
Sale is highly probable
Management committed to a plan to sell the asset
Disposal plan should be completed within one year

from date of classification (subject to events outside
entitys control)
Significant change in plan or withdrawal unlikely
Programme to locate a buyer initiated

Asset actively marketed as a price that is reasonable in
relation to its fair value
Example 20.3: Plan to sell time to vacate

An entity is committed to a plan to sell its HQ and has initiated
action to find a buyer.
Situation 1
The entity intends to transfer the building to a buyer after it
vacates the building. The time to vacate is normal. The criterion
is met at the plan commitment date.
Situation 2
The entity will continue to use the building until a new HQ is
built. The building will not be transferred until construction is
completed. The delay demonstrates that the building is not
available for immediate sale and thus the criterion is not met,
even if a firm purchase commitment has already been entered
into.
Example 20.4: Plan to sell backlog of customers

An entity is committed to a plan to sell a manufacturing facility and has
initiated action to locate a buyer, but there is a backlog of customer
orders.
Situation 1
The entity intends to sell the manufacturing facility with its operations
and any uncompleted orders will transfer to the buyer. The criterion will
be met at the plan commitment date.
Situation 2
The entity intends to sell the manufacturing facility but without its
operation and it does not intend to transfer it until it eliminates the
backlog of orders. The delay means that the facility is not available for
immediate sale and thus the criterion is not met until the operations
cease, even if a firm purchase commitment were obtained before
operations ceased.
Example 20.5: Plan to sell future work required

An entity acquires a property via foreclosure comprising land and
buildings that it intends to sell.
Situation 1
If the entity does not intend to sell until it completes renovations,
the delay means the property is not available for immediate sale
until the renovations are complete.
Situation 2
If, after renovations are competed and the property is classified
as held for sale, the entity becomes aware of environmental
damage, the property cannot be sold until remediation takes
place. The property is thus not available for immediate sale and
the criterion would not be met. It would have to be reclassified.
See Chapter 20, Example 20.6
Example 20.7: Sale period beyond one year (A)

Entity in the power-generation industry is committed to plan to
sell a disposal group that represents a significant portion of its
regulated operations. The sale requires regulatory approval that
could extend beyond 1 year. However, while it is highly
probable that a buyer will be found, actions to obtain approval
from the regulator cannot be initiated until a buyer is located
and firm purchase commitment obtained.
As the sale is highly probable, it may be classified as held for

sale even though it extends beyond one year.
Example 20.8: Sale period beyond one year (B)

An entity is committed to sell a manufacturing facility but, after a
firm purchase commitment is obtained, the buyers inspection
identifies environmental damage that must be made good and
this will extend beyond one year. However, the entity has
initiated appropriate procedures to repair the environmental
damage and the sale remains highly probable.
Thus, it can be classified as held for sale.
Presentation of disposal groups classified as held for sale

2012
2013
ASSETS
Non current assets
AAA
X
X
BBB
X
X
CCC X
X
X
X
Current assets
DDD X
X
EEE
X
X
X
X
Non-current assets classified as held for sale
8,000
X
X
Total assets
X
X
20.4 DISCONTINUED OPERATIONS
A discontinued operation is a component of an entity that

has 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 co-ordinated 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
A component of an entity is a CGU or group of CGUs
Presentation and disclosure
Present as a single figure in the SPLOCI:
Post-tax profit or loss of discontinued operations;

and either
Post-tax gain or loss recognised on the

measurement to fair value less costs to sell of
the assets held for sale that constitute the
discontinued operation, or
Post-tax gain or loss on the disposal of the

assets that constituted the discontinued
operation
An analysis of the single figure is provided in the notes
See Figure 20.1:

m
Continuing Operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Other expenses
Finance costs
Share of profit of associates
Profit before tax
Income tax expense
Net profit for period for continuing operations
Discontinued Operations
Net profit for period for discontinued operations*
Net profit for period
Attributable to:
Equity holders of the parent
Non-controlling interest
x
(x)
x
x
(x)
(x)
(x)
(x)
x
x
(x)
x
x
x
x
x
x
*Required analysis would be given in notes. Alternatively, profit from discontinued
operations could be analysed in separate column on the face of SPLOCI.
Summary: Assets held for sale

To be classified as held for sale:
Available for immediate sale in present condition

Sale highly probable
Transfer to be completed within one year
Where assets &
liabilities to be disposed
of in a single
transaction treat as a
disposal group
Carry at lower of carrying value & FVLCS

Do not depreciate
Present separately on face of SFP
Where an entity adopts the revaluation model for the measurement of assets, any asset classified as
held for sale should be revalued at fair value immediately prior to the reclassification. Upon
reclassification costs to sell are deducted and recognised as an impairment in the SPLOCI.
Summary: Discontinued operations

Discontinued is a component of an entity that has either been disposed of or is
classified as held for sale and:
Represents a major line of business or geographical area; or

Part of a single coordinated plan of disposal; or
Is a subsidiary acquired exclusively with a view to resale.
Disclose as a single amount on the face of the SPLOCI, the sum of:
Post-tax profit or loss of discontinued operation; and

Post-tax gain or loss recognised on the disposal of the asset.
Detailed disclosures of revenue, expenses, pre-tax profit or loss and related income taxes
also required either in notes or on face of SPLOCI plus separate disclosures relating to cash
flows from discontinued operations
Now try Chapter 20, Example 20.11:

Non-current assets held for sale and
discontinued operations

Chapter 20 - Non-Current Assets Held For Sale and Discontinued Operations

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Chapter 20 - Non-Current Assets Held For Sale and Discontinued Operations

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NON-CURRENT ASSETS HELD FOR

Connolly International Financial Accounting and Reporting 4th Edition

Non-current assets typically held for use within the

NRV generally of little interest to users

Connolly International Financial Accounting and Reporting 4th Edition

20.2 IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND

To improve the information about assets and disposal groups

It does this by specifying the:

presentation of non-current assets held for sale (i.e. such

Rules for the presentation of discontinued operations (i.e.

Measurement provisions of IFRS 5 do not apply to:

Deferred tax assets (IAS 12 See Chapter 13)

Financial assets (IFRS 9 See Chapter 25)

Agricultural non-current assets measured at fair value

Assets arising from employee benefits (IAS 19 See

Investment properties measured using fair value model

Connolly International Financial Accounting and Reporting 4th Edition

20.3 NON-CURRENT ASSETS HELD FOR SALE

The term refers to an individual asset or group of assets

Classification and measurement

principally through a sale transaction rather than through

Connolly International Financial Accounting and Reporting 4th Edition

Measurement immediately prior to re-classification as held

Immediately before the initial classification of the asset as

Any impairment loss is recognised in SPLOCI P/L unless

Connolly International Financial Accounting and Reporting 4th Edition

Measurement upon re-classification as held for sale

Measure at lower of:

Any impairment arising upon re-classification as held for

Connolly International Financial Accounting and Reporting 4th Edition

Depreciation six months 2013

Carrying value at 30 June 2013 prior to

Impairment charge 2013

Connolly International Financial Accounting and Reporting 4th Edition

Carrying value at date of re-classification as held

Fair value less costs to sell

Impairment charge 2013

Connolly International Financial Accounting and Reporting 4th Edition

Measurement after re-classification as held for sale

No depreciation or amortisation charges (even if asset is

At subsequent reporting dates, re-measure to FVLCS

Impairment losses are recognised in SPLOCI P/L

Connolly International Financial Accounting and Reporting 4th Edition

Connolly International Financial Accounting and Reporting 4th Edition

Connolly International Financial Accounting and Reporting 4th Edition

Changes to a plan of sale

Re-classify and re-measure at lower of:

Carrying amount before the asset was classified as

Recoverable amount at the date of change to plan

Connolly International Financial Accounting and Reporting 4th Edition

Impairment charge at 31 December 2012

Carrying value prior to re-classification as held for

Impairment charge after re-classification as held for

Carrying value prior to re-classification as held for

Connolly International Financial Accounting and Reporting 4th Edition

Non-current assets to be abandoned

Held for sale includes those to be abandoned / scrapped

See Chapter 20, Examples 20.1 and 20.2

Connolly International Financial Accounting and Reporting 4th Edition

Example 20.1: Abandoned

For 2012 the results and cash flows should be treated as

Connolly International Financial Accounting and Reporting 4th Edition