B9b. Assets Held for Sale 2 / 12

Syllabus B9b)

Define and account for non-current assets held for sale and discontinued operations.

How do we deal with items in our accounts which we are no longer going to use, instead we are going to sell them

So, think about this for a moment.. Why does this matter to users?

Well, the accounts show the business performance and position, and you expect to see assets in there that they actually are looking to continue using.

Therefore their values do not have to be shown at their market value necessarily (as your intention is not to sell them)

Here, though, everything changes… we are going to sell them.

So maybe market value is a better value to use, but they haven’t been sold yet, so showing them at MV might still not be appropriate as this value has not yet been achieved

So these are the issues that IFRS 5 tried, in part, to deal with and came up with the following solution..

Accounting Treatment

  1. Step 1 - Calculate the Carrying Amount...

    Bring everything up to date when we decide to sell

    This means:

    - charge the depreciation as we would normally up to that date or
    - revalue it at that date (if following the revaluation policy)

  2. Step 2 - Calculate FV - CTS

    Now we can get on with putting the new value on the asset to be sold..

    Measure it at Fair Value less costs to sell (FV-cts)

    This is because, if you think about it, this is the what the company will receive.

    HOWEVER, the company hasn’t actually made this sale yet and so to revalue it now to this amount would be showing a profit that has not yet happened

  3. Step 3 - Value the Assets held for sale

    IFRS 5 says the new value should actually be…

    ...The lower of carrying amount (step 1) and FV-CTS (step 2)

  4. Step 4 - Check for an Impairment

    Revaluing to this amount might mean an impairment (revaluation downwards) is needed. 

    This must be recognised in profit or loss, even for assets previously carried at revalued amounts.

Also, any assets under the revaluation policy will have been revalued to FV under step 1

Then in step 2, it will be revalued downwards to FV-cts.

Therefore, revalued assets will need to deduct costs to sell from their fair value and this will result in an immediate charge to profit or loss.

Subsequent increase in Fair Value?

  • This basically happens at the year-end if the asset still has not been sold

    A gain is recognised in the p&l up to the amount of all previous impairment losses.

No depreciation

Non-current assets or disposal groups that are classified as held for sale shall not be depreciated.

When is an asset recognised as held for sale?

  • Management is committed to a plan to sell

  • The asset is available for immediate sale

  • An active programme to locate a buyer is initiated

  • The sale is highly probable, within 12 months of classification as held for sale

  • The asset is being actively marketed for sale at a sales price reasonable in relation to its fair value

Abandoned Assets

The assets need to be disposed of through sale. Therefore, operations that are expected to be wound down or abandoned would not meet the definition. Therefore assets to be abandoned would still be depreciated.

Balance sheet presentation

Presented separately on the face of the balance sheet in current assets

  • Subsidiaries Held for Disposal

    IFRS 5 applies to accounting for an investment in a subsidiary held only with a view to its subsequent disposal in the near future.

  • Subsidiaries already consolidated now held for sale

    The parent must continue to consolidate such a subsidiary until it is actually disposed of. It is not excluded from consolidation and is reported as an asset held for sale under IFRS 5.

    So subsidiaries held for sale are accounted for initially and subsequently at FV-CTS of all the net assets not just the amount to be disposed of.