9.

258 FINANCIAL REPORTING

UNIT 8 :
INDIAN ACCOUNTING STANDARD 105 : NON-CURRENT
ASSETS HELD FOR SALE AND DISCONTINUED
OPERATIONS

LEARNING OUTCOMES

After studying this unit, you will be able to

 Understand the objective and scope of this standard
 Define the terms non-current asset, disposal group, cash generating unit
and discontinued operation
 Examine the criteria for classifying existing assets as held for sale
 Measure non-current assets (or disposal group) classified as held for sale
 Present and disclose non-current assets (or disposal group) classified as
held for sale
 Present and disclose discontinued operations as per the standard.

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 INDIAN ACCOUNTING STANDARD 105 9.259

UNIT OVERVIEW

Objective
Accounting for assets held for
sale
Presentation and disclosure of
asset held for sale and
discontinued operations

Scope out - Measurement

Presentation and Disclosure of provisions
Discontinued Operations • Deferred tax assets - Ind AS 12
• Financial Assets - Ind AS 109
• Agriculture - Ind AS 41
• Contractual rights - Ind AS 104
• Employee benefits - Ind AS 19

Presentation and Disclosure of

Non- current asset held for
sale
Criteria for classifying existing
assets as held for sale

Measurement of assets
classified as held for sale

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8.1 OBJECTIVE
 Non-Current assets held for sale are presented separately from other assets in the Balance
Sheet as their classification will change and the value will be principally recovered through sale
transaction rather than through continuous use in operations of the entity. This standard
specifies the accounting for assets held for sale.
 Results of Discontinuing Operations should be separately presented in the Statement of Profit
and loss as it affects the ability of the entity to generate future cash flows. This standard
specifies the presentation and disclosure of discontinued operations.
Hence, two core objectives of the standard is as follows:

Presentation and
Accounting for Assets Disclosure of
held for sale Discontinued
Operations

Measured at Fair Results to be

Value less Cost to sell; presented seperately
Depreciation on such in the Statement of
assets to cease Profit & Loss

Presented separately
in the Balance Sheet

8.2 SCOPE
 The classification and presentation requirements of this Ind AS apply to all recognised non-
current assets and to all disposal groups of an entity.
 The measurement requirements of this Ind AS also apply to all recognised non-current assets
and to all disposal groups of an entity except few exceptions mentioned below.
 Assets classified as non-current in accordance with Ind AS 1, Presentation of Financial
Statements, shall not be reclassified as current assets until they meet the criteria to be
classified as held for sale in accordance with this Ind AS.

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 INDIAN ACCOUNTING STANDARD 105 9.261

 The classification, presentation and measurement requirements in this Ind AS applicable to a

non-current asset (or disposal group) that is classified as held for sale apply also to a non-
current asset (or disposal group) that is classified as held for distribution to owners acting in
their capacity as owners.
 The measurement provisions of this Ind AS do not apply to the following assets (which are
covered by the Ind ASs listed either as individual assets or as part of a disposal group):

Measurement Provisions of Ind AS 105 do not apply

Deferred Financial
Assets Assets
tax arising from Contractual
Non-
Assets Employee current rights under
benefits Assets Insurance
Within the contracts
scope of Ind
Ind AS 12 AS 109
Ind AS 19

Which are As defined

measured at Fair in Ind AS
value less cost to 104
sell in Ind AS 41

 Disposal groups may include both scoped-in and scoped-out non-current assets. If a disposal
group includes any scoped-in non-current asset(s), the measurement requirements of this
Ind AS apply to the group as a whole, so that the group is measured at the lower of its carrying
amount and fair value less costs to sell.

8.3 RELEVANT DEFINITIONS

The following are the key terms used in this standard:
 Non-current assets are assets that do not meet the definition of current assets.
 Current asset An entity classifies an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in its normal operating
cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in Ind AS 7) unless the asset is restricted

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from being exchanged or used to settle a liability for at least twelve months after the
reporting period.
 Disposal group is a group of assets to be disposed of, by sale or otherwise, together as a
group in a single transaction, and liabilities directly associated with those assets that will be
transferred in the transaction. A disposal group may be a group of cash-generating units, a
single cash-generating unit, or part of a cash-generating unit.
 Cash-generating unit is a smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or groups of assets.
 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. (Ind AS 113)
 Costs to sell are the incremental costs directly attributable to the disposal of an asset (or
disposal group), excluding finance costs and income tax expense.
 A discontinued operation is a component of an entity that either has been disposed of or is
classified as held for sale and:
(a) represents a separate major line of business or geographical area of operations; or
(b) is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations; or
(c) is a subsidiary acquired exclusively with a view to resale.
 A component of an entity comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the entity.
 Highly Probable Significantly more likely than probable. (Probable means more likely than not)

8.4 CLASSIFICATION OF NON-CURRENT ASSETS (OR

DISPOSAL GROUPS) AS HELD FOR SALE OR AS HELD FOR
DISTRIBUTION TO OWNERS
An entity is required to 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.

Available for Immediate Sale in

Key requirements for present condition
Non-current Assets held
for sale
Sale must be highly probable

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 INDIAN ACCOUNTING STANDARD 105 9.263

Asset must be available for immediate sale in its present condition and Sale must be highly probable
are the two key requirements to classify a non-current asset as held for sale.
8.4.1 Available for Immediate Sale
The asset (or disposal group) must be available for immediate sale in its present condition. The
terms that are usual and customary for sale of similar assets (or disposal group) doesn’t disqualify
to being classified as held for sale.
However they will not be considered as available for immediate sale if they continue to be vital for
the entity’s ongoing operations or being refurbished to enhance their value. Thus, an asset (or
disposal group) cannot be classified as a non-current asset (or disposal group) held for sale, if the
entity intends to sell it in a distant future.
Examples- Available for Immediate Sale
1. A property being used as a headquarters by the entity needs to be vacated before it can be
sold. The time required to vacate the building is usual and customary for sale of such assets.
Hence the criteria for classification as held for sale would be met.
2. In above example, if property can be vacated only after a replacement is available then this
may indicate that the property is not available for immediate sale, but only after the
replacement becomes available.
3. An entity can’t classify a manufacturing facility as held for sale if prior to selling the facility
it needs to clear a backlog of uncompleted order.
4. In above example, if entity intends to sell the manufacturing facility along with the
uncompleted orders it can be classified as held for sale.
5. An entity plans to renovate some of its property to increase its value prior to selling it to a
third party. The entity is already searching for a buyer at current market values. But due to
the plans to renovate the property prior to sale, the property may not be meeting condition
of available for immediate sale.
6. A company has put a property on the market and expects that all the conditions of
classification as held for sale is meeting. Any buyer will undertake searches and valuations
before making an offer and exchanging contracts : Such conditions are normal for properties
and any delays that might arise from such legal processes do not preclude the property from
being classified as held for sale.

8.4.2 Sale must be highly probable

This Standard defines ‘highly probable’ as ‘significantly more likely than probable’ where probable
means more likely than not.

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Ind AS 105 prescribes following five conditions to be satisfied for the sale to qualify as highly
probable:

1. The appropriate level of management must be committed to a

plan to sell the asset (or disposal group).

2. An active programme to trace a buyer and complete the selling

plan must have been initiated.

3. The asset (or diposal group) must be marketed for sale at a

price that is reasonable in relation to its current fair value.

4. The sale transaction is expected to be completed within one

year from the date of classification.

5. Significant changes to or withdrawal from the plan to sell the

asset are unlikely.

8.4.3 Other Key Points

8.4.3.1 Loss of Control in Subsidiary
An entity which has committed to a sale plan which involves loss of control of subsidiary shall
classify all the assets and liabilities of that subsidiary as held for sale when the criteria set out
above is met, regardless of whether the entity will retain a non-controlling interest in its former
subsidiary after the sale.
8.4.3.2 Exception to the period of One year
An entity can still classify an asset (or disposal group) as held for sale, even if the timeframe of
one year to conclude the sale transaction has lapsed. For this:
(i) the delay must have been caused by the events or circumstances which are beyond the control
of the entity; and
(ii) there must be sufficient evidences that the entity is still committed to it selling plan.
Example
An entity is committed to its selling plan of a manufacturing facility in its present condition
and so classifies it as held for sale. After a firm purchase commitment, the buyer’s inspection
identifies environmental damages not previously known to exist. The entity is required by the

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 INDIAN ACCOUNTING STANDARD 105 9.265

buyer to make good the damage, which will extend the timeframe of one year to complete the
sale within one year. However, the entity has initiated actions to make good the damage and
satisfactory rectification is highly probable. In this situation exception to one year requirement
will met.

8.4.3.3 Sale includes exchange

Sale transaction includes exchange of non-current assets for other non-current assets when the
exchange has commercial substance in accordance of Ind AS 16 Property, Plant and Equipment.
8.4.3.4 Asset acquired exclusively with a view to subsequent disposal
When an entity acquires a non-current asset (or disposal group) exclusively with a view to its
subsequent disposal, the non-current asset (or disposal group) is classified as held for sale at the
acquisition date. This standard provides a short period (usually three months) to meet the
classification criteria that don’t met at the acquisition except requirement of one year.
Example:
An entity has acquired a building exclusively with a view of its subsequent disposal. The
management is highly confident that the property can be sold in one year. The property requires
refurbishing it to enhance its value which is highly probable to be completed in less than a period
of three months. The building will be classified as held for sale on the date of acquisition itself
even though it is not immediately available for sale.

8.4.3.5 Criteria met after reporting period

If the criteria of held for sale are met after the reporting period but before the date of authorisation
the financial statements, a non-current asset should not classify as held for sale. However, when
those criteria are met after the reporting period but before the approval of the financial statements
for issue, the entity shall disclose the information specified in paragraph 41(a), (b) and (d) in the
notes.
8.4.3.6 Classification as held for distribution
An entity shall classify a non-current asset (or disposal group) as held for distribution to its owner
on a parallel line as discussed above required for classification as held for sale.
8.4.3.7 Non-current assets to be abandoned
Non-current assets (or disposal group) that need to be abandoned will not qualify to classify as held
for sale because their carrying amount will be principally recovered through continuing use in the
entity’s operation rather through the sale. If however, the disposal group to be abandoned meets the
criteria as prescribed in Ind AS 105 to be classified as a discontinued operation, then the disclosure
regarding discontinued operation must be presented.

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Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal
groups) that are to be used to the end of their economic life and non-current assets (or disposal
groups) that are to be closed rather than sold.
Example:
Entity ceases to use a manufacturing plant because demand has declined. However, the plant is
maintained in a workable condition and it is expected to be brought back into use in future when
demand picks up.
It is neither to be treated as abandoned asset nor as held for sale because its carrying amount
will be principally recovered through continuous use, therefore the entity will not stop charging
depreciation or treat it as held for sale. This is because its carrying amount will be recovered
principally through continuing use to the end of its economic life.

8.5 MEASUREMENT OF NON-CURRENT ASSETS (OR

DISPOSAL GROUPS) CLASSIFIED AS HELD FOR SALE
8.5.1 Measurement at the lower of carrying amount and fair value less cost
to sell
 An entity should measure a non-current asset (or disposal group) classified as held for sale at
the lower of its carrying amount and fair value less costs to sell.
 If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale,
it will be measured on initial recognition at the lower of its carrying amount had it not been so
classified (for example, cost) and fair value less costs to sell. Hence, if the asset (or disposal
group) is acquired as part of a business combination, it will be measured at fair value less costs
to sell.
 Immediately before the initial classification of the asset (or disposal group) as held for sale,
the carrying amounts of the asset (or all the assets and liabilities in the group) is measured in
accordance with applicable Ind AS.
 On subsequent remeasurement of a disposal group, the carrying amounts of any assets and
liabilities that are not within the scope of the measurement requirements of this Ind AS, but are
included in a disposal group classified as held for sale, should be remeasured in accordance
with applicable Ind Ass before the fair value less costs to sell of the disposal group is
remeasured.
 Depreciation and amortization shall be immediately stopped from the moment the asset has
been classified as held for sale.

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 Interest and other expenses attributable to the liabilities of a disposal group classified as held
for sale shall continue to be recognised.
 When the sale is expected to occur beyond one year, the entity should measure the costs to
sell at their present value. Any increase in the present value of the costs to sell that arises from
the passage of time shall be presented in profit or loss as a financing cost.
 Non-current asset (or disposal group) classified as held for distribution are also measured on
same line as non-current asset (or disposal group) classified as held for sale.
Illustration 1 - Measurement prior to classification as held for sale
An item of property, plant and equipment that is measured on the cost basis should be
measured in accordance with Ind AS 16.
Entity ABC owns an item of property and it was stated at the following amounts in its last
financial statements:
31st December, 20X1 `
Cost 12,00,000
Depreciation (6,00,000)
Net book value 6,00,000
The asset is depreciated at an annual rate of 10% ie. ` 1,20,000 p.a.
During July, 20X2, entity ABC decides to sell the asset and on 1st August it meets the
conditions to be classified as held for sale. Analyse.
Solution
At 31st July, entity ABC should ensure that the asset is measured in accordance with
Ind AS 16. It should be depreciated by further ` 70,000 (`1,20,000 x 7/12) and should be
carried at ` 5,30,000 before it is measured in accordance with Ind AS 105.
Note: From the date the asset is classified as held for sale no further depreciation will be
charged.
****
Example - Classification as held for sale
A ltd acquired a property for ` 2,00,000. After few years the cumulative depreciation on the
property is of ` 80,000 has been recognised and subsequently the property is classified as
held for sale under Ind AS 105.
At the time of classification as held for sale it will be measured at lower of its carrying amount
which is ` 1,20,000 (2,00,000 – 80,000) and fair value less costs to sell as estimated at
` 1,00,000.

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Accordingly, there is a write-down on initial classification of property as held for sale and
accordingly the property is carried at ` 1,00,000. A loss of ` 20,000 is recognised in profit or
loss.
On next reporting date, the property’s fair value less costs to sell is estimated at ` 85,000.
Accordingly, a loss of ` 15,000 is recognised in profit or loss and the property is carried at
` 85,000.
Subsequently, the property is sold for ` 90,000. A gain of ` 5,000 will be recognised.

8.5.2 Recognition of impairment losses and reversals

 An entity should recognise an impairment loss for any initial or subsequent write-down of the
asset (or disposal group) to fair value less costs to sell, to the extent that it has not been
recognised in accordance with above.
 An entity should recognise a gain for any subsequent increase in fair value less costs to sell of
an asset, but not in excess of the cumulative impairment loss that has been recognised either
in accordance with this Ind AS or previously in accordance with Ind AS 36, Impairment of
Assets.
 An entity should recognise a gain for any subsequent increase in fair value less costs to sell of
a disposal group:
(a) to the extent that it has not been recognised in the remeasurement of scoped out non-
current assets, current assets and liablities; but
(b) not in excess of the cumulative impairment loss that has been recognised, either in
accordance with this Ind AS or previously in accordance with Ind AS 36, on the non-
current assets that are within the scope of the measurement requirements of this Ind AS.
 The impairment loss (or any subsequent gain) recognised for a disposal group should reduce
(or increase) the carrying amount of the non-current assets in the group that are within the
scope of the measurement requirements of this Ind AS, in the order of allocation set out in
paragraphs 104(a) and (b) and 122 of Ind AS 36 .
As per Para 104 (a) and (b) of Ind AS 36, Impairment of Assets, The impairment loss shall be
allocated to disposal groups in the following order:
(i) first, to reduce the carrying amount of any goodwill allocated to the disposal group; and
(ii) then to the other assets of the disposal group pro rata on the basis of the carrying amount
of each asset in the group.
 A gain or loss not previously recognised through remeasurement by the date of the sale of a
noncurrent asset (or disposal group) should be recognised at the date of derecognition.

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Requirements relating to derecognition are set out in:

(a) paragraphs 67–72 of Ind AS 16 for property, plant and equipment; and
(b) paragraphs 112–117 of Ind AS 38, Intangible Assets, for intangible assets.
Example on disposal group classified as Held for Sale:
Disposal Group Carrying amount at the Carrying amount as
reporting date before remeasured immediately
classification as held for before classification as
sale held for sale
` `
Goodwill 1,500 1,500
Property, Plant and Equipment 4,600 4,000
(carried at revalued amounts)
Building (carried at cost) 5,700 5,700
Inventory 2,400 2,200
Investment in Equity Instruments 1,800 1,500
Total 16,000 14,900
The entity should recognise the loss of ` 1,100 (` 16,000 - ` 14,900), in accordance with applicable
Ind AS, immediately before classifying it as held for sale.
The entity estimated that fair value less costs to sell of the disposal group amounts to ` 13,000.
Since the entity has classified a disposal group as held for sale it should measure it at the lower of
its carrying amount ` 14,900 and fair value less costs to sell ` 13,000 which comes to ` 13,000.
The entity should recognises an impairment loss of ` 1,900 (` 14,900 – 13,000) when the disposal
group is initially classified as held for sale.
The Inventory and Investment is remeasured as per Ind AS 2 and Ind AS 109 at not more than fair
value at the date of remeasurement immediately classified as held for sale.
This impairment loss of ` 1,900 is allocated to remaining assets in the proportion of their carrying
value other than inventory and investment in equity instrument.
The allocation of impairment loss can be illustrated as follows:
Disposal Group Carrying amount as Allocated Carrying
remeasured immediately Impairment amount after
before classification as held Loss allocation of
for sale (as per applicable Ind Impairment
AS) Loss
` ` `
Goodwill 1,500 (1,500) -

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Property, Plant and 4,000 (165) 3,835

Equipment (carried at
revalued amounts)
Building (carried at cost) 5,700 (235) 5,465
Inventory 2,200 - 2,200
Investments in equity 1,500 - 1,500
instruments
Total 14,900 (1,900) 13,000
Firstly, the impairment loss reduces the amount of goodwill in the disposal group. Then, the
remaining impairment loss is recognised to other assets pro-rata based on the carrying amount of
those assets.
Suppose, at the end of reporting period the fair value less cost to sell is increased and estimated
at ` 15,500.
The maximum impairment loss reversal allowed will be ` 1,900 being cumulative impairment loss
recognised earlier. Out of this, the impairment loss actual reversal shall be limited to ` 400 i.e.
` (1900-1,500).
Reversal of impairment loss is not allowed on Goodwill as it will leads to recognition of Self
generated goodwill which is prohibited under Ind AS 38, Intangible Assets.

8.5.3 Changes to a plan of sale

 If an entity has classified an asset (or disposal group) as held for sale, but the held for sale
criteria no longer met, the entity should cease to classify the asset (or disposal group) as held
for sale.
 The entity shall measure a non-current asset that ceases to be classified as held for sale (or
ceases to be included in a disposal group classified as held for sale) at the lower of:
(a) its carrying amount before the asset (or disposal group) was classified as held for sale,
adjusted for any depreciation, amortisation or revaluations that would have been
recognised had the asset (or disposal group) not been classified as held for sale; and
(b) its recoverable amount at the date of the subsequent decision not to sell.
 The entity shall include any required adjustment to the carrying amount of a non-current asset
that ceases to be classified as held for sale in profit or loss from continuing operations in the
period in which the held for sale criteria no longer met.
 Financial statements for the periods since classification as held for sale shall be amended
accordingly if the disposal group or non-current asset that ceases to be classified as held for
sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint
venture or an associate.

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 If an entity removes an individual asset or liability from a disposal group classified as held for
sale, the remaining assets and liabilities of the disposal group will continue to be measured as
a group only if the group meets the criteria for classification as held for sale. Otherwise:
(a) the remaining non-current assets of the group that individually meet the criteria to be
classified as held for sale shall be measured individually at the lower of their carrying
amounts and fair values less costs to sell at that date; and
(b) any non-current assets that do not meet the criteria shall cease to be classified as held
for sale in accordance with paragraph 26.

8.6 PRESENTATION AND DISCLOSURES OF A NON-

CURRENT ASSET (OR DISPOSAL GROUP) CLASSIFIED
AS HELD FOR SALE
8.6.1 Non – current assets and disposal groups classified as held for sale
 Entity shall present and disclose information about non- current asset (or disposal group)
classified as held for sale in such a manner that enable the user of financial statements to
evaluate financial effects of non-current asset (or disposal group) classified as held for sale.
8.6.2 Presentation
 An entity is required to present a non-current asset classified as held for sale and the assets
of a disposal group classified as held for sale separately from other assets in the balance sheet.
 The liabilities of a disposal group classified as held for sale should be presented separately
from other liabilities in the balance sheet. Those assets and liabilities should not be offset and
presented as a single amount.
 The major classes of assets and liabilities classified as held for sale should be separately
disclosed either in the balance sheet or in the notes, except when the disposal group is a newly
acquired subsidiary that meets the criteria to be classified as held for sale on acquisition.
 An entity should present separately any cumulative income or expense recognised in other
comprehensive income relating to a non-current asset (or disposal group) classified as held for
sale.
 If the disposal group is a newly acquired subsidiary that meets the criteria to be classified as
held for sale on acquisition, disclosure of the major classes of assets and liabilities is not
required.
 Comparative amounts for non-current assets or for the assets and liabilities of disposal groups
classified as held for sale in the balance sheets for prior periods are not reclassified or re-
presented to reflect the classification in the balance sheet for the latest period presented.

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 Any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as
held for sale that does not meet the definition of a discontinued operation shall be included in
profit or loss from continuing operations.
Example: Presentation of Disposal group

Property, Plant and Equipment 4,900

Inventory 1,700
Investment in equity instruments 1,400
Liabilities (3,300)
Net Carrying Amount 4,700

An amount of ` 400 relating to these assets has been recognised in other comprehensive
income and accumulated in equity.
The presentation of disposal group in entity’s Balance Sheet is as follows:
Assets 20X1-20X2 20X2-20X3
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
Equity and Liabilities
Equity attributable to equity holders of the parent
FFF X X
GGG X X
Amounts recognised in other comprehensive income and
accumulated in equity relating to non-current assets held
for sale 400 -

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X X
Non-Controlling Interests X X
Total Equity X X

Non-Current Liabilities
HHH X X
III X X
X X

Current Liabilities
KKK X X
LLL X X
MMM X X
Liabilities directly associated with non-current assets
classified as held for sale 3,300 -
X X
Total liabilities X X
Total Equity and liabilities X X

8.6.3 Disclosures
 An entity should disclose the following information in the notes to the financial statements in
the period in which a non-current asset (or disposal group) has been either classified as held
for sale or sold:
(a) Description of the non-current asset (or disposal group);
(b) Description of facts and circumstances of the sale, or leading to the expected disposal
and the expected manner and timing of that disposal;
(c) Gain or loss recognised and if not presented separately on the face of the income
statement, the caption in the income statement that includes that gain or loss.
(d) If applicable, the reportable segment in which the non-current asset (or disposal group) is
presented in accordance of Ind AS 108 Operating Segments.
(e) If there is a change of plan to sell, a description of facts and circumstances leading to the
decision and its effect on results.

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Illustration 2
S Ltd purchased a property for ` 6,00,000 on 1st April, 20X1. The useful life of the property is
15 years. On 31st March, 20X3, S Ltd classified the property as held for sale. The impairment
testing provides the estimated recoverable amount of ` 4,70,000.
The fair value less cost to sell on 31st March, 20X3 was ` 4,60,000. On 31st March, 20X4
management changed the plan, as property no longer met the criteria of held for sale. The
recoverable amount as at 31st March, 20X4 is ` 5,00,000.
Value the property at the end of 20X3 and 20X4.
Solution
(a) Value of property immediately before the classification as held for sale as per Ind AS 16 as
on 31st March, 20X3 `
Purchase Price 6,00,000
Less: Accumulated Depreciation 80,000 (for two years)
Less: Impairment loss 50,000 (5,20,000-4,70,000)
Carrying Amount 4,70,000

On initial classification as held for sale on 31 st March, 20X3, the value will be lower of:
Carrying amount after impairment ` 4,70,000
Fair Value less Cost to sell ` 4,60,000
On 31st March, 20X3 Non-current classified as held for sale will be recorded at ` 4,60,000.
Depreciation of ` 40,000 and Impairment Loss of ` 60,000 (50,000 +10,000) is charged in
profit or loss for the year ended 31st March, 20X3.
(b) On 31st March, 20X4 held for sale property is reclassified as criteria doesn’t met. The value
will be lower of:
Carrying amount immediately before classification
on 31st March, 20X3 ` 4,70,000
Less Depreciation based on 13 years balance life ` 36,154
Carrying amount had the asset is not classified as held for sale ` 4,33,846
Recoverable Amount ` 5,00,000
Property will be valued at ` 4,33,846 on 31st March, 20X4
Adjustment to the carrying amount of ` 26,154 (` 4,60,000 - 4,33,846) is charged to the profit
or loss.
****

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 INDIAN ACCOUNTING STANDARD 105 9.275

8.7 DISCONTINUED OPERATIONS

8.7.1 Discontinued operation – definition
 Ind AS 105 defines Discontinued Operation as: A component of an entity that either has been
disposed of or is classified as held for sale and:
(a) represents a separate major line of business or geographical area of operations; or
(b) is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations; or
(c) is a subsidiary acquired exclusively with a view to resale.
 A component of an entity comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the entity. In
other words, a component of an entity will have been a cash-generating unit or a group of cash-
generating units while being held for use.
Illustration 3
Sun Ltd is a retailer of takeaway food like burger and pizzas. It decides to sell one of its outlets
located in chandni chowk in New Delhi. The company will continue to run 200 other outlets in New
Delhi.
All Ind AS 105 criteria for held for sale classification were first met at 1st October, 20X1. The outlet
will be sold in June, 20X2.
Management believes that outlet is a discontinued operation and wants to present the results of
outlet as 'discontinued operations'. Analysis
Solution
The chandani chowk outlet is a disposal group; it is not a discontinued operation as it is only one
outlet. It is not a major line of business or geographical area, nor a subsidiary acquired with a view
to resale.
****
8.7.2 Separate presentation of discontinued operations
An entity should present and disclose information that enables users of the financial statements to
evaluate the financial effects of discontinued operations and disposals of non-current assets (or
disposal groups).
This allows the user to distinguish between the operations which will continue in the future and those
which will not and make it more predictable the ability of entity to generate future cash flows.

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 9.276 FINANCIAL REPORTING

8.7.3 Presentation in the statement of profit and loss

An entity shall disclose a single amount in the statement of profit and loss comprising the total of:
(a) the post-tax profit or loss of discontinued operations; and
(b) the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on
the disposal of the assets or disposal group(s) constituting the discontinued operation.
 In addition, this single amount must be analysed into:
(a) the revenue, expenses and pre-tax profit or loss of discontinued operations;
(b) the related income tax expense as required by paragraph 81(h) of Ind AS 12;
(c) the gain or loss recognised on the measurement to fair value less costs to sell or on the
disposal of the assets or disposal group(s) constituting the discontinued operation; and
(d) the related income tax expense as required by paragraph 81(h) of Ind AS 12.
 The analysis may be presented in the notes or in the statement of profit and loss. If it is
presented in the statement of profit and loss it should be presented in a section identified as
relating to discontinued operations, i.e. separately from continuing operations. The analysis is
not required for disposal groups that are newly acquired subsidiaries that meet the criteria to
be classified as held for sale on acquisition.
 Entities are required to disclose the amount of income from continuing operations and from
discontinued operations attributable to owners of the parent. These disclosures may be
presented either in the notes or in the statement of profit and loss.
8.7.4 Disclosures in the statement of cash flows
Disclose the net cash flows attributable to the operating, investing and financing activities of
discontinued operations. These disclosures may be presented either in the notes or in the financial
statements. These disclosures are not required for disposal groups that are newly acquired
subsidiaries that meet the criteria to be classified as held for sale on acquisition.
When the amounts relating to discontinued operations are presented separately, the comparative
figures for prior periods are also re-presented, so that the disclosures relate to all operations that
have been discontinued by the end of the reporting period for the latest period presented.
8.7.5 Adjustment to prior period disposals
Adjustments in the current period to amounts previously presented in discontinued operations that
are directly related to the disposal of a discontinued operation in a prior period should be classified
separately in discontinued operations. The nature and amount of such adjustments are disclosed.
Examples of circumstances in which these adjustments may arise include the following:
(a) the resolution of uncertainties that arise from the terms of the disposal transaction, such as the
resolution of purchase price adjustments and indemnification issues with the purchaser;

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 INDIAN ACCOUNTING STANDARD 105 9.277

(b) the resolution of uncertainties that arise from and are directly related to the operations of the
component before its disposal, such as environmental and product warranty obligations
retained by the seller; and
(c) the settlement of employee benefit plan obligations, provided that the settlement is directly
related to the disposal transaction.
8.7.6 Change to a plan of sale
If an entity ceases to classify a component of an entity as held for sale, the results of operations of
the component previously presented in discontinued operations should be reclassified and included
in income from continuing operations for all periods presented. The amounts for prior periods should
be described as having been re-presented.
8.7.7 Loss of Control in Subsidiary
An entity that is committed to a sale plan involving loss of control of a subsidiary should disclose the
information as above when the subsidiary is a disposal group that meets the definition of a
discontinued operation.
Example: Presentation of Discontinued Operations in the Statement of profit and loss.
Statement of profit and loss for the year ended 31 st March, 20X3
20X1-20X2 20X2-20X3
Continuing Operations
Revenue XX XX
Cost of Sales (XX) (XX)
Gross Profit XX XX
Other Income XX XX
Distribution Costs (XX) (XX)
Administrative Expenses (XX) (XX)
Other Expenses (XX) (XX)
Finance Costs (XX) (XX)
Share of Profit of Associates XX XX
Profit before Tax XX XX
Income Tax Expense (XX) (XX)
Profit for the period from Continuing Operation XX XX

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 9.278 FINANCIAL REPORTING

Discontinued Operations
Profit for the period from discontinued Operations* XX XX
Profit for the period XX XX
Attributable to:
Owner of the parent
Profit for the period from continuing operations XX XX
Profit for the period from discontinued operations XX XX
Profit for the period attributable to owners of the parent XX XX
Non-Controlling Interests
Profit for the period from continuing operations XX XX
Profit for the period from discontinued operations XX XX
Profit for the period attributable to non-controlling interests XX XX
XX XX

Note (a) the required analysis would be given in the notes.

8.8 SIGNIFICANT DIFFERENCES IN IND AS 105 VIS-À-VIS

AS 24
S. Particular Ind AS 105 AS 24
No.
Scope and Objective Ind AS 105 specifies the AS 24 establishes principles for
accounting for non-current reporting information about
assets held for sale, and the discontinuing operations. It
presentation and disclosure of does not deal with the non-
discontinued operations. current assets held for sale;
fixed assets retired from active
used and held for sale, are dealt
in existing AS 10, ‘PPE’.
Cash Flow Ind AS 105 does not mention In the AS 24, requirements
Statement about cash flow statement. related to cash flow statement
are applicable when the
enterprise presents a cash flow
statement.
Discontinued vs Under Ind AS 105, a AS 24, there is no concept of
Discontinuing discontinued operation is a discontinued operations but it
Operations component of an entity that deals with discontinuing
operations.

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 INDIAN ACCOUNTING STANDARD 105 9.279

either has been disposed of or

is classified as held for sale.
Time Period: As per Ind AS 105, the sale AS 24 does not specify any time
should be expected to qualify for period in this regard as it relates
recognition as a completed sale to discontinuing operations
within one year from the date of
classification with certain
exceptions.
Initial Disclosure Ind AS 105 does not mention so AS 24 specifies about the initial
Event: as it relates to discontinued disclosure event in respect to a
operation. discontinuing operation.
Measurement: Under Ind AS 105, non-current AS 24 requires to apply the
assets (disposal groups) held principles set out in other
for sale are measured at the relevant Accounting Standards,
lower of carrying amount and e.g., the existing AS 10 requires
fair value less costs to sell, and that the fixed assets retired from
are presented separately in the active use and held for disposal
balance sheet. should be stated at the lower of
their net book value and net
realisable value and shown
separately in the financial
statements.
Abandonment of Ind AS 105 specifically In AS 24, abandonment of
Assets mentions that abandonment of assets is classified as a
assets should not be classified discontinuing operation;
as held for sale. however, changing the scope of
an operations or the manner in
which it is conducted is not
abandonment and hence not a
discontinuing operation.
Guidance Regarding Ind AS 105 provides guidance AS 24 does not give any specific
Measurement of regarding changes to the plan to guidance regarding this aspect.
Changes to a Plan of sell non-current assets (or
Change disposal groups) which are
classified as held for sale.
Definition: As per Ind AS 105, a Under AS 24, a discontinuing
discontinued operation is a operation is a component of an
component of an entity that entity that represents the major
represents a separate major line line of business or geographical
of business or geographical area of operations and that can
area, or is a subsidiary acquired be distinguished operationally
exclusively with a view to resale. and for financial reporting
purposes.

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 9.280 FINANCIAL REPORTING

TEST YOUR KNOWLEDGE

Questions
1. On November 30, 20X1, Entity X becomes committed to a plan to sell a property. However, it
plans certain renovations to increase its value prior to selling it. The renovations are expected
to be completed within a short span of time i.e., 2 months.
Can the property be classified as held for sale at the reporting date i.e. December 31, 20X1?
2. On March 1, 20X1, entity R decides to sell one of its factories. An agent is appointed and the
factory is actively marketed. As on March 31, 20X1, it is expected that the factory will be sold
by February 28, 20X2. However, in May 20X1, the market price of the factory deteriorated.
Entity R believed that the market will recover and thus did not reduce the price of the factory.
The company’s accounts are authorised for issue on June 26, 20X1. Should the factory be
shown as held for sale as on March 31, 20X1?
3. On June 1, 20X1, entity X plans to sell a group of assets and liabilities, which is classified as a
disposal group. On July 31, 20X1, the Board of Directors approves and becomes committed to
the plan to sell the manufacturing unit by entering into a firm purchase commitment with entity
Y. However, since the manufacturing unit is regulated, the approval from the regulator is
needed for sale. The approval from the regulator is customary and highly probable to be
received by November 30, 20X1 and the sale is expected to be completed by March 31, 20X2.
Entity X follows December year end. The assets and liabilities attributable to this manufacturing
unit are as under:
(Amount in `)

Particulars Carrying value as on Carrying value as on

December 31, 20X0 July 31, 20X1
Goodwill 500 500
Plant and Machinery 1,000 900
Building 2,000 1,850
Debtors 850 1,050
Inventory 700 400
Creditors (300) (250)
Loans (2,000) (1,850)
2,750 2,600

The fair value of the manufacturing unit as on December 31, 20X0 is ` 2,000 and as on
July 31, 20X1 is ` 1,850. The cost to sell is 100 on both these dates. The disposal group is not

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 INDIAN ACCOUNTING STANDARD 105 9.281

sold at the period end i.e., December 31, 20X1. The fair value as on December 31, 20X1 is
lower than the carrying value of the disposal group as on that date.
Required:
1. Assess whether the manufacturing unit can be classified as held for sale and reasons
there for. If yes, then at which date?
2. The measurement of the manufacturing unit as on the date of classification as held for
sale.
3. The measurement of the manufacturing unit as at the end of the year.
Answers
1. The property cannot be classified as held for sale at the balance sheet date as it is not available
for sale immediately in its present condition. Although the renovations are expected to be
completed within a short span 2 months, this fact is not relevant for classification.
However, if the PPE meets the criteria for held for sale by January 31, 20X2 (i.e., 2 months
from November 30, 20X1) and the accounts are not authorised by that date, then necessary
disclosures need to be given in the financial statements.
2. In this example, the factory ceases to meet the definition of held for sale post the balance sheet
date but before the financial statements are authorised for issue, as it is not actively marketed
at a reasonable price. But, since the market conditions deteriorated post the balance sheet
date, the asset will be classified as held for sale as at March 31, 20X1.
3. Assessing whether the manufacturing unit can be classified as held for sale
The manufacturing unit can be classified as held for sale due to the following reasons:
(a) The disposal group is available for immediate sale and in its present condition. The
regulatory approval is customary and it is expected to be received in one year. The date
at which the disposal group must be classified as held for sale is July 31, 20X1, i.e., the
date at which management becomes committed to the plan.
(b) The sale is highly probable as the appropriate level of management i.e., board of directors
in this case have approved the plan.
(c) A firm purchase agreement has been entered with the buyer.
(d) The sale is expected to be complete by March 31, 20X2, i.e., within one year from the
date of classification.
Measurement of the manufacturing unit as on the date of classification as held for sale
Following steps need to be followed:

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 9.282 FINANCIAL REPORTING

Step 1: Immediately before the initial classification of the asset (or disposal group) as held for
sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall be
measured in accordance with applicable Ind AS.
This has been done and the carrying value of the disposal group as on July 31, 20X1 is
determined at ` 2,600. The difference between the carrying value as on December 31, 20X0
and July 31, 20X1 is accounted for as per the relevant Ind AS i.e., (Ind AS 2 for inventory and
Ind AS 39 for debtors, creditors and loans).
Step 2: An entity shall measure a non-current asset (or disposal group) classified as held for
sale at the lower of its carrying amount and fair value less costs to sell.
The fair value less cost to sell of the disposal group as on July 31, 20X1 is ` 1,750
(i.e.1,850-100). This is lower than the carrying value of ` 2,600. Thus an impairment loss needs
to be recognised and allocated first towards goodwill and thereafter pro-rata between assets
of the disposal group which are within the scope of Ind AS 105 based on their carrying value.
Thus, the assets will be measured as under:
Particulars Carrying value – Impairment Carrying value as
July 31, 20X1 per Ind AS 105 –
July 31, 20X1
Goodwill 500 (500) -
Plant and Machinery 900 (115) 785
Building 1,850 (235) 1,615
Debtors 1,050 - 1,050
Inventory 400 - 400
Creditors (250) - (250)
Loans (1,850) - (1,850)
2,600 (850) 1,750

Measurement of the manufacturing unit as on the date of classification as at the year

end
The measurement as at the year-end shall be on similar lines as done above.
The assets and liabilities in the disposal group not within the scope of this Standard are
measured as per the respective Standards.
The fair value less cost to sell of the disposal group as a whole is calculated. This fair value
less cost to sell as at the year-end shall be compared with the carrying value as at the date of
classification as held for sale. It is provided that the fair value as on the year end is less than
the carrying amount as on that date – thus the impairment loss shall be allocated in the same
way between the assets of the disposal group falling within the scope of this standard as shown
above.

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