1. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
CHAPTER 20
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

2. 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)

3. 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)

4. Scoped-out assets
Measurement provisions of IFRS 5 do not apply to:
Deferred tax assets (IAS 12 – See Chapter 13)
Assets arising from employee benefits (IAS 19 – See Chapter 17)
Financial assets (IFRS 9 – See Chapter 25)
Investment properties measured using fair value model (IAS 40 – See Chapter 5)
Agricultural non-current assets measured at fair value less costs (IAS 41 – See Chapter 34)

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

6. Classification and measurement
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 entity’s 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

7. 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

8. 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

9. Example 1
A property is purchased for €500,000 on 1 January 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 re-classification as held for sale on 30 June 2013?
What are the required accounting entries in 2013 in respect of the re-classification of the asset as held for sale?

10. Example 1 – Solution a) €
Cost
500,000
Depreciation 2011
(25,000)
Depreciation 2012
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

11. 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

12. 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

13. 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.

14. 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).

15. Example 3 (Cont’d)
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.

16. 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

17. Example 4
A property is purchased for €500,000 on 1 January 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.

18. Example 4 – Solution
2012 €
Cost 1 January 2011
500,000
Depreciation 2011
(25,000)
Depreciation 2012
Carrying value prior to impairment
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 sale
(10,000)
Carrying value at 31 December 2012 (classified as held for sale
390,000

19. Example 4 – Solution
2013 €
Carrying value prior to re-classification as held for sale at 31 December 2012
400,000
Depreciation charge for 2013 would have been
(22,222)
Carrying value at 31 December 2013 would have been
377,778
Actual carrying value at 31 December 2013
390,000
Impairment charge upon re-classification as non- current asset (held for use) at 31 December 2013
(12,222)

20. Non-current assets to be abandoned
‘Held for sale’ includes those to be abandoned / scrapped
See Chapter 20, Examples 20.1 and 20.2

21. 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 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.

22. 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

23. 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
Programme to locate a buyer initiated
Asset actively marketed as a price that is reasonable in relation to its fair value
Disposal plan should be completed within one year from date of classification (subject to events outside entity’s control)
Significant change in plan or withdrawal unlikely

24. 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.

25. 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.

26. 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

27. 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.

28. 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 buyer’s 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. See Chapter 20, Example 20.9

29. Presentation of disposal groups classified as held for sale € € ASSETS Non current assets AAA X X BBB X X CCC X X X X Current assets DDD X X EEE X X Non-current assets classified as held for sale 8,000 - Total assets X X See Chapter 20, Example 20.10

30. 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

31. 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

32. See Figure 20.1: €m Continuing Operations Revenue x Cost of sales (x)
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
*Required analysis would be given in notes. Alternatively, profit from discontinued operations could be analysed in separate column on the face of SPLOCI.

33.    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.

34. 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

35. Now try Chapter 20, Example 20
Now try Chapter 20, Example 20.11: Non-current assets held for sale and discontinued operations