1. Objective of IFRS 5
IFRS 5 provides rules for:
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Classification of non-current assets held for sale
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Measurement of these assets
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Presentation of discontinued operations in financial statements
The goal is to ensure users can clearly identify assets that will be recovered through sale, not through use.
2. Scope of IFRS 5
IFRS 5 applies to:
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Non-current assets (or disposal groups) held for sale
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Discontinued operations
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Assets held for distribution to owners
It does not apply to:
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Deferred tax assets (IAS 12)
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Employee benefits (IAS 19)
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Financial instruments (IFRS 9)
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Investment property measured at fair value (IAS 40)
3. Classification Requirements
3.1 Asset Held for Sale Criteria
A non-current asset (or disposal group) is classified as HFS if:
- the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and
- its sale must be highly probable.
Highly probable ?
For the sale to be highly probable,
- the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and
- an active programme to locate a buyer and complete the plan must have been initiated.
- Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.
- In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification*, except as permitted by paragraph 9, and
- actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
*An extension to the one-year timeframe is possible if delays are caused by external, uncontrollable events, provided the entity remains committed to the sale.
The similar criteria also apply to assets held for distribution to owners.
The probability of shareholders’ approval (if required in the jurisdiction) should be considered as part of the assessment of whether the sale is highly probable.
3.2 Disposal Group
A disposal group = a group of assets + liabilities to be sold together as one transaction.
Example:
Selling a factory + its equipment + related employee liabilities.
4. Measurement Rules
4.1 Measurement Basis
When classified as held for sale:
Asset = lower of
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Carrying amount, or
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Fair value less costs to sell (FVLCTS)
Depreciation stops once classified as held for sale.
4.2 Impairment
If FVLCTS < carrying amount → impairment loss recognized in P/L.
If value increases later → can reverse impairment, but not above the original carrying amount before classification.
5. Presentation Requirements
5.1 Statement of Financial Position
Show separately:
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“Assets held for sale” (as a single line)
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“Liabilities directly associated with assets held for sale”
No offsetting allowed.
5.2 Statement of Profit or Loss – Discontinued Operations
A discontinued operation is a component of an entity that:
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Is disposed of (or held for sale), and
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Represents a separate major line of business or geographical area, or
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Is part of a single coordinated plan to dispose such a line.
Must present separately:
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Profit/loss from discontinued operations
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Gains/losses on disposal
Shown as 1 line in P/L → detail in notes.
6. Disclosure Requirements
Entities must disclose:
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Description of discontinued operation
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Revenue, expenses, profit/loss of discontinued operations
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Cash flows from operating, investing, financing activities
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Gain/loss recognized on disposal
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Major classes of assets / liabilities held for sale
7. Practical Examples
Example 1 – Asset Held for Sale
A machine:
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Carrying amount = $100,000
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FVLCTS = $85,000
→ Classify as asset held for sale
→ Measure at lower of 100,000 and 85,000
→ Impairment loss = $15,000
Depreciation stops immediately.
Example 2 – Disposal Group
A company commits to sell a store branch:
Assets:
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Inventory $40,000
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Equipment $90,000
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Building $200,000
Liabilities:
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Staff liabilities $30,000
FVLCTS of disposal group = $280,000
Carrying amount of assets–liabilities = $300,000
→ Impairment = $20,000
→ Disposal group presented separately in balance sheet.
Example 3 – Discontinued Operation
Company sells its entire electronics division (a major business line).
Results from the division:
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Revenue = $3 million
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Expenses = $2.2 million
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Profit = $0.8 million
Loss on disposal = $0.3 million
P/L presentation (single line):
Profit from discontinued operations: $0.5 million
Notes will show the breakdown.
Example 4 – Asset not meeting criteria
Management wants to sell a building but:
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No active marketing
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No buyer identified
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Sale timeline uncertain
→ Does not meet IFRS 5 criteria
→ Remains as property, plant and equipment (IAS 16)
→ Depreciation continues.
YN Reviewed