as held for sale is appropriate. However, as the standard is not explicit, judgement will
be required.
Non-current assets held for sale and discontinued operations 191
If the subsidiary in question meets the definition of a discontinued operation, the
standard’s presentation and disclosure requirements for discontinued operations apply
(see 3.2 below). [IFRS 5.36A].
IFRS 5 does not explicitly extend these requirements to loss of control of a subsidiary
in other ways. Given the alignment of the rules on sales with distributions to owners, it
seems clear that partial distributions triggering loss of control would result in held for
distribution classification.
However, control may be lost in other ways. Examples would include a subsidiary
issuing shares to third parties, or control established by contract coming to an end.
The Basis for Conclusions on the standard sheds some light on the views of the Board.
In particular, the following:
‘At the date control is lost, all the subsidiary’s assets and liabilities are derecognised and any
investment retained in the former subsidiary is recognised. Loss of control is a significant
economic event that changes the nature of an investment. The parent-subsidiary
relationship ceases to exist and an investor-investee relationship begins that differs
significantly from the former parent-subsidiary relationship. Therefore, the new investor-
investee relationship is recognised and measured initially at the date when control is lost.
‘The Board concluded that, under the sale plan described above, the controlling interest
in the subsidiary is, in substance, exchanged for a non-controlling interest. Therefore,
in the Board’s view, being committed to a plan involving loss of control of a subsidiary
should trigger classification as held for sale.’ [IFRS 5.BC24B-24C].
This, and the fact that the standard applies to assets held for distribution to owners, may
suggest that the explicit rules for partial sales of assets resulting in loss of control should
also apply to loss of control from other causes. However, the standard is not explicit, and
the IFRIC concluded in January 20161 that it could not resolve the issue, and decided it
should be considered for a broad-scope project on IFRS 5 (future developments of IFRS 5
are discussed at 6 below). In the meantime, judgement will be required.
2.1.3.B
Partial disposal of an associate or joint venture
In accordance with IAS 28 – Investments in Associates and Joint Ventures, IFRS 5 will
apply to an investment, or a portion of an investment, in an associate or a joint venture
that meets the criteria to be classified as held for sale (see 2.1.2 above). Any retained
portion of such an investment that has not been so classified should be accounted for
using the equity method until disposal of the portion that is classified as held for sale takes
place. After the disposal takes place, any retained interest should be accounted for in
accordance with IFRS 9 – Financial Instruments – unless the retained interest continues
to be an associate or a joint venture, in which case the equity method should be used.
If such an investment ceases to be classified as held for sale, it should be accounted for
using the equity method retrospectively from the date of its original classification as
held for sale. Financial statements for the periods since classification as held for sale
should be amended accordingly. [IAS 28.20, 21].
192 Chapter
4
2.2
Measurement of non-current assets (and disposal groups) held
for sale
2.2.1
Scope of the measurement requirements
IFRS 5’s classification and presentation requirements apply to all recognised non-
current assets (which is defined in the same way as in IAS 1, discussed at 2.1 above) and
disposal groups. However, the measurement provisions of the standard do not apply to
the following assets (which remain covered by the standards listed) either as individual
assets or as part of a disposal group: [IFRS 5.2, 5]
(a) deferred tax assets (dealt with in IAS 12 – Income Taxes);
(b) assets arising from employee benefits (dealt with in IAS 19 – Employee Benefits);
(c) financial assets within the scope of IFRS 9;
(d) non-current assets that are accounted for in accordance with the fair value model
in IAS 40 – Investment Property;
(e) non-current assets that are measured at fair value less costs to sell in accordance
with IAS 41 – Agriculture; and
(f) contractual rights under insurance contracts as defined in IFRS
4 –
Insurance Contracts. For periods beginning on or after 1 January 2021 this
becomes ‘groups of contracts within the scope of IFRS 17 – Insurance Contracts’.
2.2.2
Measurement of non-current assets and disposal groups held for sale
2.2.2.A
Measurement on initial classification as held for sale
IFRS 5 requires that immediately before the initial classification of an asset (or disposal
group) as held for sale, the carrying amount of the asset (or all the assets and liabilities
in the group) should be measured in accordance with applicable IFRSs. [IFRS 5.18]. In
other words, an entity should apply its usual accounting policies up until the criteria for
classification as held for sale are met.
Thereafter a non-current asset (or disposal group) classified as held for sale should be
measured at the lower of its carrying amount and fair value less costs to sell. [IFRS 5.15].
IFRS 13 – Fair Value Measurement – defines fair value as ‘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’ (see Chapter 14). [IFRS 13.9]. Costs to sell
are defined as ‘the incremental costs directly attributable to the disposal of an asset (or
disposal group), excluding finance costs and income tax expense.’ [IFRS 5 Appendix A].
When the sale is expected to occur beyond one year, the costs to sell should be
measured at their present value. Any increase in the present value of the costs to sell
that arises from the passage of time should be presented in profit or loss as a financing
cost. [IFRS 5.17]. For disposal groups, the standard adopts a portfolio approach. It requires
that if a non-current asset within the scope of its measurement requirements is part of
a disposal group, the measurement requirements should 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. [IFRS 5.4]. It will still be necessary to apportion any write down to the underlying
assets of the disposal group, but no element is apportioned to items outside the scope
of the standard’s measurement provisions. This is discussed further at 2.2.3 below.
Non-current assets held for sale and discontinued operations 193
Items held for distribution to owners should be measured at the lower of carrying amount
and fair value less costs to distribute. Costs to distribute are incremental costs directly
attributable to the distribution, excluding finance costs and income tax expense. [IFRS 5.15A].
If a newly acquired asset (or disposal group) meets the cri
teria to be classified as held
for sale (which, as discussed at 2.1.2 above, are subtly different for assets acquired
exclusively with a view to subsequent disposal), applying the above requirements will
result in the asset (or disposal group) being 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. This means that 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. [IFRS 5.16].
The implementation guidance accompanying the standard provides the following
illustration of a subsidiary acquired with a view to sale. [IFRS 5.IG13].
Example 4.3:
Measuring and presenting subsidiaries acquired with a view to
sale and classified as held for sale
Entity A acquires an entity H, which is a holding company with two subsidiaries, S1 and S2. S2 is acquired
exclusively with a view to sale and meets the criteria to be classified as held for sale. Accordingly, S2 is also
a discontinued operation (see 3.1 below).
The fair value less costs to sell of S2 is €135. A accounts for S2 as follows:
• initially, A measures the identifiable liabilities of S2 at fair value, say at €40;
• initially, A measures the acquired assets as the fair value less costs to sell of S2 (€135) plus the fair
value of the identifiable liabilities (€40), i.e. at €175;
• at the reporting date, A remeasures the disposal group at the lower of its cost and fair value less costs to
sell, say at €130. The liabilities are remeasured in accordance with applicable IFRSs, say at €35. The
total assets are measured at €130 + €35, i.e. at €165;
• at the reporting date, A presents the assets and liabilities separately from other assets and liabilities in
its consolidated financial statements as illustrated in Example 4.5 at 2.2.4 below; and
• in the statement of comprehensive income, A presents the total of the post-tax profit or loss of S2 and
the post-tax gain or loss recognised on the subsequent remeasurement of S2, which equals the
remeasurement of the disposal group from €135 to €130.
Further analysis of the assets and liabilities or of the change in value of the disposal group is not required.
The final sentence in the above example says no further analysis of the assets and
liabilities is required. This must refer to there being no such disclosure requirement for
financial statements. A detailed purchase price analysis and tracking of the acquired
entity may still be needed, notwithstanding a partial relaxation of what is required to be
disclosed by IFRS 5. This may be needed to be able to determine the split between gross
assets and liabilities and how movements in the carrying amounts are reflected in profit
or loss, or other comprehensive income.
2.2.2.B Subsequent
remeasurement
While a non-current asset is classified as held for sale or while it is part of a disposal
group classified as held for sale it should not be depreciated or amortised. Interest and
other expenses attributable to the liabilities of a disposal group classified as held for sale
should continue to be recognised. [IFRS 5.25].
On subsequent remeasurement of a disposal group, the standard requires that the
carrying amounts of any assets and liabilities that are not within the scope of its
194 Chapter
4
measurement requirements, be remeasured in accordance with applicable IFRSs before
the fair value less costs to sell of the disposal group is remeasured. [IFRS 5.19].
2.2.3
Impairments and reversals of impairment
The requirement to measure a non-current asset or disposal group held for sale at the
lower of carrying amount and fair value less costs to sell may give rise to a write down
in value (impairment loss) and possibly its subsequent reversal. As noted above, the first
step is to account for any items outside the scope of the standard’s measurement rules
in the normal way. After that, any excess of carrying value over fair value less costs to
sell should be recognised as an impairment. [IFRS 5.20].
Any subsequent increase in fair value less costs to sell of an asset up to the cumulative
impairment loss previously recognised either in accordance with IFRS 5 or in accordance
with IAS 36 should be recognised as a gain. [IFRS 5.21]. In the case of a disposal group, any
subsequent increase in fair value less costs to sell should be recognised:
(a) to the extent that it has not been recognised under another standard in relation to
those assets outside the scope of IFRS 5’s measurement requirements; but
(b) not in excess of the cumulative amount of losses previously recognised under
IFRS 5 or before that under IAS 36 in respect of the non-current assets in the
group which are within the scope of the measurement rules of IFRS 5. [IFRS 5.22].
Any impairment loss (or any subsequent gain) recognised for a disposal group should be
allocated to the non-current assets in the group that are within the scope of the
measurement requirements of IFRS 5. The order of allocation should be:
• first, to reduce the carrying amount of any goodwill in the group; and
• then, to the other non-current assets of the group pro rata on the basis of the
carrying amount of each asset in the group. [IFRS 5.23].
This is illustrated by the standard with the following example: [IFRS 5.IG10]
Example 4.4:
Allocation of impairment loss to the components of a disposal group
An entity plans to dispose of a group of its assets (as an asset sale). The assets form a disposal group, and are
measured as follows:
Carrying amount at
Carrying amount as
the reporting date
remeasured immediately
before classification
before classification as
as held for sale
held for sale
€
€
Goodwill
1,500
1,500
Property, plant and equipment
4,600
4,000
(carried at revalued amounts)
Property, plant and equipment
5,700
5,700
(carried at cost)
Inventory
2,400
2,200
Investments in equity instruments
1,800
1,500
Total 16,000
14,900
The entity recognises the loss of €1,100 (€16,000 – €14,900) immediately before classifying the disposal group
as held for sale. The entity measures the fair value less costs to sell of the disposal group as €13,000. Because an
entity measures a disposal group classified as held for sale at the lower of its carrying amount and fair value less
Non-current assets held for sale and discontinued operations 195
costs to sell, the entity recognises an impairment loss of €1,900 (€14,900 – €13,000) when the group is initially
classified as held for sale. The impairment loss is allocated to non-current assets to which the measurement
requirements of the IFRS are applicable. Therefore, no impairment loss is allocated to inventory and investments
in equity instruments. The loss is allocated to the other assets in the order of allocation described above.<
br />
The allocation can be illustrated as follows:
First, the impairment loss reduces any amount of goodwill. Then, the residual loss is allocated to other assets pro rata
based on the carrying amounts of those assets.
Carrying amount as
Carrying
remeasured immediately
amount after
before classification
Allocated
allocation of
as held for sale
impairment loss
impairment loss
€
€
€
Goodwill 1,500
(1,500)
–
Property, plant and equipment
4,000
(165)
3,835
(carried at revalued amounts)
Property, plant and equipment
5,700
(235)
5,465
(carried at cost)
Inventory 2,200
–
2,200
Investments in equity instruments
1,500
–
1,500
Total 14,900
(1,900)
13,000
In the first table of this example, it is not particularly clear what the meaning and
purpose of the left hand column is. The fact that some of the figures are different in
each column, seems to indicate that the column header ‘Carrying amount at the
reporting date before classification as held for sale’ is referring to the opening statement
of financial position at the beginning of the period in which the classification is made.
As noted at 2.2.2.A above, an entity is required to remeasure the assets as normal under
the relevant standards immediately before classifying them as held for sale. This would
mean the difference of €1,100 reflects routine accounting entries (such as depreciation
and revaluation) from the start of the period to the date of classification as held to sale.
Also worthy of note is that the example does not say where the entity recognises the
loss of €1,100. Given that the disposal group contains investments in equity instruments,
some of this amount might be recorded in other comprehensive income rather than in
profit or loss. Similarly, movements in property plant and equipment held at revalued
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 39