IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: key requirements and examples

When an asset is classified as held for sale

A non-current asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale rather than through continuing use (para. 6). It must be available for immediate sale in its present condition on usual terms, and the sale must be highly probable (para. 7).

A disposal group is a group of assets to be disposed of together in a single transaction, and the liabilities directly associated with them that will be transferred. It may include current assets and current liabilities.

• management at the appropriate level is committed to a plan to sell;
• an active programme to locate a buyer has been initiated;
• the asset is marketed at a price that is reasonable in relation to its current fair value;
• the sale is expected to be completed within one year from the date of classification (para. 8);
• significant changes to the plan or its withdrawal are unlikely.

Exceptions and special cases

The sale period may exceed one year if the delay is caused by events outside the entity's control and the plan to sell remains in place (para. 9). If the criteria are met only after the reporting date, the asset is not reclassified in those financial statements; if they are met before the statements are authorised for issue, disclosures are made in the notes (para. 12).

• An asset that will simply be abandoned or used to the end of its life is not classified as held for sale — its value is recovered through use (para. 13).
• An asset acquired exclusively for resale is classified at the acquisition date if the one-year requirement is met and the other criteria will be met within a short period — usually three months (para. 11).
• Under a sale plan involving loss of control of a subsidiary, all its assets and liabilities are classified as held for sale, even if a non-controlling interest will be retained (para. 8A).
• The same rules apply to assets held for distribution to owners (para. 5A).

Measurement: the lower of two amounts

Immediately before classification the carrying amount of the asset, or of all assets and liabilities in the group, is measured under the applicable IFRSs (para. 18). The asset is then measured at the lower of carrying amount and fair value less costs to sell (para. 15).

A write-down to fair value less costs to sell is recognised as an impairment loss (para. 20). A subsequent increase is recognised as a gain, but not in excess of the cumulative impairment loss previously recognised (para. 21).

Example: a warehouse with a carrying amount of 800 currency units is put up for sale; fair value is 750 and costs to sell are 30. It moves to a separate line at 720 with an impairment loss of 80. If six months later the estimate rises to 770 net of costs, only 50 can be reversed — up to 770 and not above the cumulative loss.

• Depreciation of an asset classified as held for sale ceases (para. 25).
• Interest and other expenses on the liabilities of a disposal group continue to be recognised (para. 25).
• Some assets (for example, deferred tax assets and assets arising from employee benefits) are measured under their own standards even within a group (para. 5).

If the sale does not happen

When the criteria in paras. 7–9 are no longer met, the classification ceases (para. 26). The asset is measured at the lower of its carrying amount before classification, adjusted for depreciation or revaluations that would have been recognised had it not been classified, and its recoverable amount at the date of the decision not to sell (para. 27).

The adjustment is included in profit or loss from continuing operations in the period in which the criteria stop being met (para. 28). In practice this means catching up on the missed depreciation in a single entry.

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 such a line or area, or is a subsidiary acquired exclusively with a view to resale (para. 32). A component comprises operations and cash flows that can be clearly distinguished, operationally and for reporting purposes (para. 31).

Closing one store of a chain is usually not a discontinued operation; leaving an entire region or selling a separate business segment may be.

• The statement of comprehensive income shows a single amount: post-tax profit or loss of discontinued operations and the result of remeasurement or disposal of their assets (para. 33(a)).
• An analysis of that amount is disclosed: revenue, expenses, pre-tax profit and income tax (para. 33(b)).
• Disclosures for comparative periods are re-presented so that they relate to all operations discontinued by the end of the latest period (para. 34).

Presentation in the statement of financial position

Assets held for sale and the assets of a disposal group are presented separately from other assets, and the group's liabilities separately from other liabilities; they are not offset or presented as a single amount (para. 38). Amounts in prior-period statements of financial position are not reclassified (para. 40) — unlike the statement of comprehensive income, where comparatives for discontinued operations are re-presented.