IFRS 5 NON-CURRENT ASSETS HELD FOR

SALE & DISCONTINUED OPERATIONS

This standard requires assets held for sale to be presented separately in the STATEMENT OF FINANCIAL
POSITION (SFP). The results of discontinued operations should be presented separately in the
STATEMENT OF PROFIT OR LOSS (P&L). This is required so that users of financial statements would be
better able to make projections about the financial position and cash flows and profits of the entity.

DISPOSAL GROUP
It is a group of assets to be disposed of by sale or otherwise together as a group in a single transaction. It
might be a subsidiary or C.G.U or a single operation within an entity.
IFRS 5 does not apply to other or certain assets covered by other accounting standards
a) Deferred tax assets (IAS 12)
b)assets arising from employee benefits (IAS 19)
c)investment properties accounted for in accordance with the fair value model (IAS 40)
d)financial assets (IAS 39)
e)agricultural and biological assets that are measured at fair value less estimated point
of sale costs.(IAS 41)
f) insurance contracts (IFRS 17)

CLASSIFICATION OF ASSETS HELD FOR SALE

A non-current asset or disposal group should be classified as held for sale if its carrying amount will be
recovered principally through a sale transaction rather than the continuing use. A number of detailed
criteria should be met
 The asset must be available for immediate sale in its present condition.
 Its sale must be highly probable (i.e. significantly more likely than not). For the sale to be probable
the following should apply
 Management must be committed to a plan to sell the assets
 There must be an active programme to locate a buyer.
 The asset must be on sale at a price that is reasonable in relation to its current fair value.
 The sale should be expected to take place within one year from the date of classification.
 It is unlikely that significant changes to the plan would be withdrawn.

NB. An asset that would be abandoned should not be classified as held for sale. This is because its
carrying amount would be recovered through its continued use. However, a disposal group to be
abandoned may meet the definition of a discontinued operation and therefore separate disclosure may
be required.

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Question 1
On 1 December 2020 a company became committed to a plan to sell a manufacturing facility and has
already found a potential buyer. The company does not intend to discontinue the operations currently
carried out in the facility. At 31 December 2020 there is backlog of uncompleted customer orders. The
subsidiary will not be able to transfer the facility to the buyer until after it ceases to operate the facility
and has eliminated the backlog of uncompleted customer orders. This is not expected to occur until
summer 2021.
Required
Should the manufacturing facility be classified as held for sale at 31 December 2020?

MEASUREMENT OF ASSETS HELD FOR SALE

 A non-current asset or disposal group held for sale should be measured at the lower of its carrying
amount and fair value less costs to sale.
 Fair value less costs to sale is equivalent to net realisable value.
 An impairment loss should be recognised when fair value less costs to sale is lower than the carrying
amount.
 A non-current asset held for sale should not be depreciated by the entity even if it is still being used
by the entity.
 A non-current asset or disposal group that is no longer classified as held for sale e.g. If the sale is not
going to take place within one year is measured at the lower of
1) Its carrying amount before it was classified as held for sale adjusted for any depreciation that
would have been charged had the asset not held for sale.
2) Its recoverable amount at the date of the decision not to sell.

Question 2
On 31 December 2019, an entity had an asset with a carrying amount of $250 000. On that date,
management decided to sell the asset for $220 000 by 28 February 2020. A buyer was found who signed
an irrevocable sale agreement based on this amount. Available information showed that the costs to sell
the asset would amount to $15 000.
Required
Outline the accounting treatment for the asset in terms of IFRS 5 on 31 December 2019.

Question 3
On 30 June 2017, an entity has an asset with a carrying amount of $175 000. On that date, management
decided to sell the asset for $150 000 by 30 September 2017. A buyer was found who signed an
irrevocable sale agreement based on this amount. Available information showed that the costs to sell
the asset would amount to $10 000.
REQUIRED:
Outline the accounting treatment for the asset in terms of IFRS 5 on 30 June 2017. (10 marks)

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Question 4
On 1 January 2018 Chiredzi Motors owned a haulage truck which cost $400,000 and an accumulated
depreciation of $80,000. It writes off depreciation on the haulage truck at 10% per annum in accordance
with the straight line method.

On 30 April 2018, management decided to dispose of the haulage truck within the next year and all of
the criteria of IFRS 5 for the classification of the asset as held for sale were met on this date. The fair
value less costs to sale for this truck amounted to $250,000 on 30 April 2018. At the end of the year the
fair value less costs to sale remained at $250,000.

Required
1. Establish the amount that must be disclosed under “Non-current assets classified as held for sale” in
the statement of financial position as at 31 December 2018. [4 marks]
2. Determine the amount of impairment (if any) that must be recognised in the statement of profit or
loss in respect of the asset for the year ended 31 December 2018 [4 marks]

Question 5
On 1 April 2015, Ratzinger Plc held a property at a carrying value of $3 million. The buildings element of
the property (25% of the total value) had a remaining useful economic life of 10 years. On 1 October
2015, Ratzinger Plc decided to sell the property, as it no longer needed it. On that date the property met
all the IFRS 5 Non-Current Assets held for Sale and Discontinued Operations criteria for classification as
“held for sale”. The estimated fair value less costs to sell was €3.25 million at 1 October 2015 and at the
reporting date 31 March 2016.
Depreciation is charged on a straight line basis and time apportioned as appropriate.
Required
What is the correct carrying value at 31 March 2016?

Question 6
IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations sets out guidance for dealing with
assets held by the entity where the economic benefits will be realised primarily through a sale rather
than through continuing use. On 31 March 2019, Jared Plc has a property which meets all the criteria to
be classified as ‘held for sale’ under IFRS 5. It is currently carried at its depreciated historic cost of $14.5
million. The company has estimated the fair value of the property at $20 million and that disposal costs
will be $0.5 million.
Required
How should the property be treated in the financial statements as at 31 March 2019?

Steps in determining the impairment loss of a disposal group

1. Ascertain the carrying amount or value of the individual assets in the disposal group.
2. Ascertain the N.R.V. (Fair Value less costs to to sell of the disposal group
3. Ascertain the lower of the carrying value and fair value less costs to sell of the disposal group
4. Calculate the impairment loss

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Question 7
On 1 October 2016, an entity with a 31 December financial year-end decided to sell a group of assets
within the following year. The group of assets meets the conditions for classification as held for sale. The
carrying amounts of the individual assets are as follows:
$
Land (01/01/2016) 3 500 000
Buildings (01/01/2016) 12 000 000
Plant and Equipment (01/01/2016) 10 500 000
Stock (01/10/2016) (NRV $1 600 000) 2 100 000
Investments (01/10/2016) 2 900 000
Additional Information
Liabilities related to plant & equipment (01/01/2016) 1 050 000
Fair Value of dispsosal group (01/10/2016) 25 800 000
Disposal costs for the whole group 2 500 000
Depreciation rates for non-currents assets:
Buildings 20% p.a. reducing balance
Plant & equipment straight line (original cost $15 000 000) with a useful life of 10 years
Requirement:
Outline the accounting treatment for the group of assets in terms of IFRS 5 on 1 October 2016

Steps in reversing previously recognised impairment loss

1. Ascertain the revised carrying values of the individual assets in the disposal group.
2. Ascertain the disposal group’s fair value less costs to sell
3. Ascertain the impairment loss to be reversed
4. Ascertain the limit on the reversible impairment loss
5. Allocate the reversal of the impairment loss to individual assets
N.B The reversal of an impairment loss can only be added back to non-current assets which fall under
measurement rules of IFRS 5. IAS 36 prohibits the reinstatement of any goodwill once it has been
written off.
6. Ascertain the revised carrying value of assets in the disposal group after reversal of the impairment
loss.

Question 8
On 1 July 2017, an entity with a June 30 financial year-end decided to dispose of a group of assets within
the following year. These assets meet the conditions for classification as a disposal group on that date.
The carrying amounts of the assets and other relevant information was as follows:

$
Land (01/07/2017) 14 136 150
Factory building (01/07/2017) (depriciated at 10% p.a. reducing balance) 67 146 850
Plant and equipment (01/07/2017) (depreciated at 15% p.a. reducing balance) 26 800 000
Stock (01/07/2017) 7 500 000
Stock (30/06/2018) (lower of cost and NRV) 5 900 000
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Liabilities related to plant & equipment
1/07/2017 4 650 000
30/06/2018 3 480 000
Investments 01/07/2017 (fair value) 15 000 000
30/06/2018 (fair value) 18 000 000
Additional Information
Fair value of disposal group 30/06/2018 145 000 000
Disposal costs for the disposal group 5 960 000
Cummulative impairment loss recognised (01/10/2017) 6 500 000
Requirement:
Outline the accounting treatment for the group of assets in terms of IFRS 5 on 30 June 2018

Question 9
Smart Talk Ltd has a disposal group that was classified as held for sale on 30 September 2020. On date of
classification, an impairment loss of $49 000 was recognised in accordance with IFRS 5 in respect of the
disposal group. No impairment losses were previously recognised in accordance with IAS 36 in respect of
any of the assets in the disposal group.

On 30 September 2020 the carrying amounts of the items included in the disposal group
(after recognition of the impairment loss) were as follows:

Carrying amounts at 30 September 2020 $

Land 98 000
Factory building (Depreciation: reducing balance at 5% per annum) 450 000
Plant (Depreciation: reducing balance at 10% per annum) 190 000
Inventories 80 000
Trade and other payables (30 000)
Share investments 100 000
888 000

The following information was applicable at 31 December 2020 (year end):

 The net realisable value of inventory amounted to $50 000.
 $15 000 in respect of trade and other payables at 30 September 2020, was repaid.
 The fair value of share investments increased with $20 000.
 The fair value of the disposal group amounted to $985 000 at 31 December 2020, while costs
associated with the sale amounted to $30 000.
Required
a) Calculate the impairment loss or reversal of impairment loss (if any) that should be recognised in
respect of the disposal group of Smart Talk Ltd on 31 December 2020.
b) Allocate the impairment loss/(reversal) to the individual assets in the disposal group on 31
December 2020

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Question 10
On 31 March 2017, an entity with a June 30 financial year end decided to dispose of an individual asset
which was correctly classified as held for sale and had a carrying amount of $7 500 000.

This recorded amount incorporates the following: original cost $13 900 000, accumulated depreciation
$4 300 000 and previosly recognised impairment losses of $2 100 000. The asset’s estimated fair value
less costs to sell when it was classified as held for sale was $6 800 000.

On 30 June 2017, the asset was remeasured, and its fair value less costs to sell was estimated at $9 750
000.
Required
Calculate the amounts which should be recognised in the entity’s financial statements in relation to the
asset.

Declassification of an asset held for sale

If an entity has previously classified an asset (or disposal group) as held for sale, but the criteria for
classification as held for sale are no longer met, the entity shall cease to classify the asset (or disposal
group) as held for sale. Under these circumstances, the 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) shall be measured at
the lower of:
 the 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
 the recoverable amount on the date of the subsequent decision not to sell.
If the non-current asset is part of a cash generating unit, this recoverable amount is the carrying amount
that would have been recognised after the allocation of any impairment loss arising on that cash
generating unit in accordance with IAS 36.

Question 11
An entity with a 31 December financial year end classified an intangible asset as held for sale on 31
December 2019. On that date, the asset had a carrying amount of $12 500 000 down from original cost
of $20 000 000. The asset is being amortised at 25% on a reducing balance basis. Due to a favourable
change in circumstances the entity decided to retain the asset, which was then reclassified as no longer
held for sale, with effect from 30 June 2020. On that date the asset’s recoverable amount was $9 450
000 and changed to straight line, with no estimate for residual value. Useful life was revised to 4 years.
Required
Show in different steps accounting treatment for the asset in terms of IFRS 5

Individual item that is part of disposal group no longer classified as held for sale
If an individual asset or liability is removed from a disposal group classified as held for sale, the
remaining assets and liabilities of the disposal group still to be sold will continue to be measured as a
disposal group only if the disposal group still meets the criteria in IFRS 5. Otherwise, the remaining non-
current assets of the disposal group that individually still meet the criteria to be classified as held for
sale will be measured individually at the lower of their carrying amounts and fair values less costs to sell

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at that date. Any non-current assets that no longer meet the criteria shall cease to be classified as held
for sale.

Question 12
An entity with a 31 December financial year end classified assets as a disposal group on 1 January 2020.
The following information relates to the classification.
CA before Impairment CA after
classification loss allocated classification
$ $ $
Freehold land and buildings 75 325 000 4 338 000 70 987 000
Plant and Equipment 24 759 000 1 426 500 23 332 500
Inventory 6 900 000 6 900 000
Liabilities (5 600 000) (5 600 000)
Investments 13 250 000 13 250 000
114 634 000 5 764 500 108 869 500

Original cost of plant and equipment 35 000 000

Depreciation on plant and equipment (no residual value) 20% straight line
Recoverable amount of plant and equipment (31/03/2020) 23 480 000
Remaining useful life of plant and equipment (31/03/2020) 3 years

On 31 March 2020, the entity secured a large contract with an overseas customer and decided to
remove the plant and equipment from the disposal group. However, the assets in that group still
collectively met the conditions for classification as held for sale on 31 March 2020.
Required
Show in different steps the accounting treatment for the plant and equipment in terms of IFRS 5.

DISCONTINUED OPERATIONS
It is a component of an entity that has either been disposed of or is classified as held for sale &
 Represents a separate major line of business or geographical area of operations.
 Is part of a single coordinated plan to dispose a major line of business or geographical area of
operations
 Is a subsidiary acquired with the view to re-sell
Discontinued operations are required to be shown separately in order to help users to predict future
performance that is based upon continued operation.

PRESENTATION IN THE STATEMENT OF PROFIT OR LOSS

An entity must disclose a single amount on the face of the post-tax profit or loss of discontinued
operations. An entity should also disclose an analysis of the above single amount into
 The revenue, expenses, pre-tax profit or loss of discontinued operations.
 The related income tax expense
 The gain or loss recognised on the measurement to fair value less costs to sale or on the disposal of
the asset or the discontinued operations.

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Question 13
St Valentine Ltd produces cards and sold roses. However, half way through the year ended 31 March
2021 the roses business was closed and the assets sold off incurring losses on the disposal of non-
current assets of $76 000 and redundancy costs of $37 000. The directors re-organized the continuing
business at a cost $98 000. Trading results may be summarised as follows:

Cards Roses
Turnover 650 000 320 000
Cost of sales 320 000 150 000
Administration expenses 120 000 11 000
Distribution costs 60 000 90 000

Other trading information (to be allocated to continuing operations) is as follows:

Interest payable $17 000
Tax $31 000
REQUIRED: Draft the income statement for the year ended 31 March 2021.

Question 14
Part A:
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations sets out the principles governing
the measurement and presentation of non-current assets that are expected to be realised through sale
rather than through continuing use. The standard also deals with reporting the results of operations that
qualify as discontinued.
Required:
Discuss the conditions which must be present in order to classify a non-current asset as being “held for
sale” and explain the accounting treatment that applies when such a classification is deemed
appropriate. (7 marks)

Part B:
Strawboy Plc is a long-established travel agent, operating through a network of retail outlets and an
online store. In recent years, the business has seen its revenue from the online store grow strongly, and
that from retail outlets decline significantly. On 25 January 2017, the board decided to close the retail
network at the financial year end of 31 July 2017, and put the buildings up for sale on that date. The
directors are seeking advice regarding the treatment of the buildings in the statement of financial
position, as well as the treatment of the trading results of the retail division for the year. The following
figures are available at 31 July 2017:

Carrying value of buildings $20.0 million

Fair value less costs to sell of buildings $17.2 million
Other expected costs of closure $3.9 million

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Trading results:
Year ended 31 July 2017 Year ended 31 July 2016
Online Store Retail Outlet Online Store Retail Outlet
$ $ $ $
Revenue 39 9 32 12
Cost of Sales (13) (7) (11) (9)
Gross profit 26 2 21 3
Operating costs (10) (5) (8) (5)
Profit before tax 16 (3) 13 (2)

Required:
(a) Outline the conditions which must be present in order to present the results of an operation as
“discontinued” and the accounting treatment that applies when such a classification is deemed
appropriate. (5 marks)
(b) Draft the Statement of Profit or Loss for Strawboy Plc for year ended 31 July 2017, together with the
comparative for 2016, taking the above information into account. (8 marks)
[Total: 20 Marks]

Disclosure requirements for Non-current assets held for sale (Disposal Group)
 Such assets should be presented separately from other assets in the SFP
 The related liabilities should be presented separately from other liabilities in the SFP
NB: These separately classified assets and liabilities should not be offset and presented a single amount
 Description of the disposal group
 Description of the factors and the circumstances of the sale, leading to the expected disposal and
the expected manner and timing of that disposal
 The gain or loss recognised in relation with changes in fair value or impairment losses
 If applicable, the segment in which the non-current asset or disposal group is presented in
accordance with IFRS 8

Question 15
Minny intends to dispose of a major line of business in the above scenario and the entity has stated that
the held for sale criteria were met under IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations. The criteria in IFRS 5 are very strict and regulators have been known to question entities on
the application of the standard. The two criteria which must be met before an asset or disposal group
will be defined as recovered principally through sale are: that it must be available for immediate sale in
its present condition and the sale must be highly probable.
Required
Discuss what is meant in IFRS 5 by ‘available for immediate sale in its present condition’ and ‘the sale
must be highly probable’, setting out briefly why regulators may question entities on the application of
the standard. (7 marks)

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