amounts may be recorded directly in other comprehensive income.
One thing which the example above fails to illustrate is that the measurement
requirements of the standard are incomplete. It is quite possible that the required
impairment exceeds the carrying value of the non-current assets within the scope of
the standard’s measurement rules. IFRS 5 is silent on what to do in such circumstances.
Possible approaches would be:
(a) to apply the impairment to current assets;
(b) to apply the impairment to non-current assets outside the scope of the standard’s
measurement rules;
(c) to recognise a separate provision; or
(d) restrict the impairment to the carrying value of the non-current assets within the
scope of the standard’s measurement requirements.
196 Chapter
4
For the present, entities will need to apply judgement based on individual
circumstances. This issue was brought to the attention of the Interpretations Committee
which referred it to the IASB. The IASB intended to address the issue through a future
amendment to IFRS 5. The Board decided tentatively to consider amending IFRS 5 as
a matter of priority and to work with the FASB to ensure IFRS 5 remains aligned with
US GAAP.2 However, at its December 2009 meeting, the IASB ‘decided not to add a
project to its agenda to address the impairment measurement and reversal issues at this
time.’3 Possible future developments are discussed at 6 below.
The standard contains a reminder that requirements relating to derecognition are set out
in IAS 16 for property, plant and equipment (discussed in Chapter 18 at 7), and IAS 38 –
Intangible Assets – for intangible assets (discussed in Chapter 17 at 9.5) and notes that a
gain or loss not previously recognised by the date of the sale of a non-current asset (or
disposal group) should be recognised at the date of derecognition. [IFRS 5.24]. This may
happen, for example, if the fair value less costs to sell of an asset classified as held for sale
at the end of the previous period falls during the current period.
2.2.4
Presentation in the statement of financial position of non-current
assets and disposal groups held for sale
The general requirement, discussed in Chapter 3 at 3.1.1, to classify items in the
statement of financial position as current or non-current (or present them broadly in
order of liquidity) is overlaid with further requirements by IFRS 5 regarding non-
current assets held for sale and disposal groups. IFRS 5’s aim is that entities should
present and disclose information that enables users of the financial statements to
evaluate the financial effects of disposals of non-current assets (or disposal groups).
[IFRS 5.30]. In pursuit of this aim, IFRS 5 requires:
• non-current assets classified as held for sale and the assets of a disposal group
classified as held for sale to be presented separately from other assets in the
statement of financial position; and
• the liabilities of a disposal group classified as held for sale to be presented
separately from other liabilities in the statement of financial position.
These assets and liabilities should not be offset and presented as a single amount. In addition:
(a) major classes of assets and liabilities classified as held for sale should generally be
separately disclosed either on the face of the statement of financial position or in
the notes. However, this is not necessary for a disposal group if it is a subsidiary
that met the criteria to be classified as held for sale on acquisition; and
(b) any cumulative income or expense recognised directly in other comprehensive
income relating to a non-current asset (or disposal group) classified as held for sale
should be presented separately. [IFRS 5.38, 39].
The requirement in (b) was included in response to comments made to the IASB
during the development of the standard. The Board describes the development as
follows: ‘Respondents to ED 4 noted that the separate presentation within equity of
amounts relating to assets and disposal groups classified as held for sale (such as, for
example, unrealised gains and losses on available-for-sale assets and foreign
currency translation adjustments) would also provide useful information. The Board
Non-current assets held for sale and discontinued operations 197
agreed and has added such a requirement to the IFRS.’ [IFRS 5.BC58]. On that basis, it
might be considered that any non-controlling interest within equity relating to non-
current assets (or disposal groups) held for sale should also be presented separately
as it would seem to represent equally useful information about amounts within
equity. However, such disclosure of non-controlling interests is not specifically
required by the standard so would remain voluntary. As noted at 3.2 below, the
standard requires an analysis of the income for the period attributable to owners
between continuing and discontinued operations.
IFRS 5 is silent as to whether the information specified in (b) above should be on the
face of the statement of financial position or in a note. However, the implementation
guidance to IFRS 5 shows a caption called ‘Amounts recognised in other comprehensive
income and accumulated in equity in relation to non-current assets held for sale’ and
illustrates the requirements as follows: [IFRS 5.IG12]
Example 4.5:
Presenting non-current assets or disposal groups classified as
held for sale
At the end of 2019, an entity decides to dispose of part of its assets (and directly associated liabilities). The
disposal, which meets the criteria to be classified as held for sale, takes the form of two disposal groups, as follows:
Carrying amount after
classification as held for sale
Disposal group I
Disposal group II
€
€
Property, plant and equipment 4,900
1,700
Investments in equity instruments
*1,400
–
Liabilities (2,400)
(900)
Net carrying amount of disposal group
3,900
800
*
An amount of €400 relating to these assets has been recognised in other comprehensive income
and accumulated in equity.
The presentation in the entity’s statement of financial position of the disposal groups classified as held for
sale can be shown as follows:
2019
2018
€
€
ASSETS
Non-current assets
×
×
AAA
×
×
BBB
×
×
CCC ×
×
×
×
Current assets
DDD ×
×
EEE
×
×
×
×
Non-current assets classified as held for sale
8,000
–
Total assets
×
×
198 Chapter
4
2019
2018
€
€<
br />
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
FFF ×
×
GGG ×
×
Amounts recognised in other comprehensive income
400
–
and accumulated in equity relating to non-current
assets held for sale
×
×
Non-controlling (or minority) interests
×
×
Total equity
×
×
Non-current liabilities
HHH ×
×
III ×
×
JJJ ×
×
×
×
Current liabilities
KKK ×
×
LLL ×
×
MMM ×
×
×
×
Liabilities directly associated with non-current assets
classified as held for sale
3,300
–
×
×
Total liabilities
×
×
Total equity and liabilities
×
×
The presentation requirements for assets (or disposal groups) classified as held for sale at the end of the
reporting period do not apply retrospectively. The comparative statements of financial position for any
previous periods are therefore not re-presented.
Once assets have been classified as non-current they should not be reclassified as
current assets until they meet the criteria to be classified as held for sale in accordance
with IFRS 5. So, for example, a mere intention to sell an asset would not trigger held for
sale accounting until all the criteria discussed at 2.1.2 above have been met.
Assets of a class that an entity would normally regard as non-current that are acquired
exclusively with a view to resale also should not be classified as current unless they meet
the slightly relaxed criteria to be classified as held for sale (see 2.1.2 above). [IFRS 5.3].
The treatment of comparatives when the classification as held for sale commences or
ceases is discussed at 4 below.
2.2.5
Changes to a plan of sale or to a plan of distribution
2.2.5.A
Assets (or disposal groups) to be retained by the entity
An asset (or disposal group) should cease to be classified as held for sale (or distribution)
if the criteria discussed in 2.1.2 are no longer met. [IFRS 5.26].
Non-current assets held for sale and discontinued operations 199
If an individual asset or liability is removed from a disposal group classified as held for
sale or classified as held for distribution, the remaining assets and liabilities of the
disposal group should only continue to be measured as a group if the group still meets
the criteria to be held for sale (or for distribution) under IFRS 5. Otherwise, the
remaining non-current assets of the group that individually meet the criteria should be
measured individually at the lower of their carrying amounts and fair values less costs
to sell at that date. Any non-current assets that do not meet the criteria should cease to
be classified as held for sale or held for distribution. [IFRS 5.29].
A non-current asset (or disposal group) that ceases to be classified as held for sale or for
distribution (or ceases to be included in a disposal group which is so classified) should
be measured at the lower of:
(a) its carrying amount before the asset (or disposal group) was classified as held for sale or
for distribution, adjusted for any depreciation, amortisation or revaluations that would
have been recognised had the asset (or disposal group) not been so classified; and
(b) its recoverable amount at the date of the subsequent decision not to sell or distribute.
Regarding (b) above, the standard notes that if the non-current asset is part of a cash-
generating unit, its 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. [IFRS 5.27].
Recoverable amount is defined as the higher of:
• an asset’s fair value less costs to sell; and
• its value in use.
Value in use is defined as ‘the present value of estimated future cash flows expected to
arise from the continuing use of an asset and from its disposal at the end of its useful
life.’ [IFRS 5 Appendix A].
Any required adjustment to the carrying amount of a non-current asset that ceases to
be classified as held for sale or for distribution should be included:
(a) in profit or loss from continuing operations in the period in which the criteria are
no longer met (unless the asset had been revalued in accordance with IAS 16 or
IAS 38 before classification as held for sale, in which case the adjustment should
be treated as a revaluation increase or decrease); and
(b) in the same caption of the statement of comprehensive income used to present
any gain or loss recognised in relation to remeasuring non-current assets (or
disposal groups) held for sale or distribution but not meeting the definition of a
discontinued operation. [IFRS 5.28, 37].
Financial statements for the periods since classification as held for sale should be
amended accordingly if the disposal group or non-current asset that ceases to be classified
as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an
interest in a joint venture or an associate. The adjustment should be presented in the same
caption in the statement of comprehensive income described at (b) above.
The treatment of comparative information on the cessation of held-for-sale classification
is discussed at 4.2 below.
200 Chapter
4
2.2.5.B
Change in method of distribution
An entity may change the manner in which an asset (or disposal group) will be disposed
of from being held for sale to being held for distribution to owners (or vice versa). Such
a change raises the question as to whether the previous accounting treatment under
IFRS 5 should be ‘unwound’ and started afresh based on the new disposal method, or
whether a seamless transition from one to the other should be treated as a continuation
of one overall disposal plan.
When the manner of disposal changes directly from one method to the other, the change in
classification is considered to be a continuation of the original plan of disposal. In such cases:
(a) the guidance discussed at 2.2.5.A above does not apply. Rather, the classification,
presentation and measurement requirements that are applicable to the new
method of disposal should be applied (see 2.1 and 2.2 above); that is, without first
treating the asset (or disposal group) as ceasing to be held for sale by reversing the
preceding accounting treatment;
(b) any reduction or increase in the fair value less costs to sell/costs to distribute of the non-
current asset (or disposal group) should be recognised as discussed at 2.2.3 above; and
(c) the date of classification as held for sale or for distribution does not change; nor
does such a change preclude an extension of
the ‘one year rule’ (both as discussed
at 2.1.2 above if the relevant conditions are met). [IFRS 5.26A].
3 DISCONTINUED
OPERATIONS
As discussed at 3.2 below, IFRS 5 requires the presentation of a single amount on the
face of the or statement of comprehensive income relating to discontinued operations,
with further analysis either on the face of the statement or in the notes.
3.1
Definition of a discontinued operation
IFRS 5 defines a discontinued operation as ‘a component of an entity that either has
been disposed of, or is classified as held for sale, and
(a) represents a separate major line of business or geographical area of operations,
(b) is part of a single co-ordinated plan to dispose of a separate major line of business
or geographical area of operations, or
(c) is a subsidiary acquired exclusively with a view to resale.’ [IFRS 5.32, Appendix A].
Classification as held for sale is discussed at 2.1 above. For the purposes of the above
definition, a ‘component of an entity’ is also defined by the standard as comprising
‘operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes, from the rest of the entity. In other words, a component
of an entity will have been a cash-generating unit or a group of cash-generating units
while being held for use.’ [IFRS 5.31, Appendix A]. IFRS 5 defines cash generating unit in the
same way as IAS 36, that is as ‘the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from other assets or groups
of assets.’ [IFRS 5 Appendix A]. Cash generating units are discussed in Chapter 20 at 3.
It seems unlikely that this definition of a discontinued operation would ever be met
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 40