IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations
Feb 15th 2011
Share this content
The objective of IFRS 5 is to specify how assets that are classified as ‘held for sale’ should be presented and disclosed within a set of financial statements, and discontinued operations.
A non-current asset (or disposal group) that is held for sale must be up for sale in its present condition and the sale must be highly probable. In order for the sale to be classed as ‘highly probable’, there must be certain characteristics present. These are as follows:
management must be committed to a plan to sell the asset;
there must be an active programme of seeking a buyer;
the asset (or disposal group) must be available for immediate sale;
the sale is highly probable; and
the sale is expected to complete within one year of the asset being classified as held for sale.
Where an asset (or disposal group) is classified as ‘held for sale’, it should not be depreciated. The asset (or disposal group) should be carried in the statement of financial position (balance sheet) at the lower of the carrying amount in the statement of financial position (balance sheet) and fair value less costs to sell.
A discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale. A discontinued operation should:
represent a separate major line of business or geographical area of operations;
be part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operation; or
be a subsidiary acquired exclusively with a view to resale.
Where an entity has a discontinued operation, that component of the entity’s operations and cash flows must be clearly distinguished both operationally and for financial reporting purposes from the rest of the entity.
For financial reporting purposes, the revenue, expenses, pre-tax profit or loss and the income tax expense of the discontinued operation should be separately presented on the face of the statement of comprehensive income (income statement) or in the notes to the financial statements.