International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 37
In response to the feedback on the discussion paper, the Board added separate projects
to its agenda to:
• guidance to help improve the way the Board drafts disclosure requirements; and
to perform a targeted Standards-level review of disclosure requirements (this is
now a ‘maintenance’ project; see 6.2.6 above); and
• develop guidance and examples to help entities apply materiality judgements to
accounting policy disclosure (this is now a ‘maintenance’ project; see 6.2.4 above).
The Board says it has made all ‘next step decisions’ relating to this research project and
plans to publish a summary of the research findings in due course.7
6.3.2
Primary financial statements
The Board is exploring targeted improvements to the structure and content of the
primary financial statements, with a focus on the statement(s) of financial performance.
The Board will continue its discussions through 2018 before deciding whether to publish
a Discussion Paper or an Exposure Draft.8
180 Chapter
3
References
1
IFRIC Update, January 2014.
3 IASB website, August 2017.
2 For periods beginning on or after 1 January
4
IASB website, August 2018.
2020 this refers to Conceptual Framework for
5
IASB website, August 2018.
Financial Reporting, IASB, March 2018. For
6
IASB website, August 2018.
earlier periods reference should be made to the
7
IASB website, August 2018.
preceding version of the Framework (discussed
8
IASB website, August 2018.
in Chapter 2).
181
Chapter 4
Non-current assets held
for sale and discontinued
operations
1 OBJECTIVE AND SCOPE OF IFRS 5 ............................................................... 183
2 NON-CURRENT ASSETS (AND DISPOSAL GROUPS) HELD FOR SALE
OR HELD FOR DISTRIBUTION TO OWNERS .................................................. 183
2.1
Classification of non-current assets (and disposal groups) held for
sale or held for distribution to owners ............................................................. 183
2.1.1
The concept of a disposal group ....................................................... 184
2.1.2
Classification as held for sale or as held for distribution to
owners .................................................................................................... 185
2.1.2.A
Meaning of available for immediate sale .................... 186
2.1.2.B Meaning
of
highly probable ........................................... 187
2.1.2.C Abandonment
...................................................................
190
2.1.3
Partial disposals of operations ........................................................... 190
2.1.3.A
Loss of control of a subsidiary ...................................... 190
2.1.3.B
Partial disposal of an associate or joint venture ......... 191
2.2
Measurement of non-current assets (and disposal groups) held for
sale ........................................................................................................................... 192
2.2.1
Scope of the measurement requirements ........................................ 192
2.2.2
Measurement of non-current assets and disposal groups
held for sale............................................................................................ 192
2.2.2.A
Measurement on initial classification as held
for sale ................................................................................ 192
2.2.2.B Subsequent
remeasurement
..........................................
193
2.2.3
Impairments and reversals of impairment ....................................... 194
2.2.4
Presentation in the statement of financial position of non-
current assets and disposal groups held for sale ............................ 196
2.2.5
Changes to a plan of sale or to a plan of distribution .................... 198
182 Chapter
4
2.2.5.A
Assets (or disposal groups) to be retained by
the entity ............................................................................ 198
2.2.5.B
Change in method of distribution ................................ 200
3 DISCONTINUED OPERATIONS ..................................................................... 200
3.1
Definition of a discontinued operation ........................................................... 200
3.2
Presentation of discontinued operations ......................................................... 201
3.3
Trading between continuing and discontinued operations ........................ 203
4 COMPARATIVE INFORMATION .................................................................... 204
4.1
Treatment of comparative information on initial classification as
held for sale ........................................................................................................... 204
4.1.1
The statement of comprehensive income ...................................... 204
4.1.2
The statement of financial position ................................................. 205
4.2
Treatment of comparative information on the cessation of
classification as held for sale ............................................................................. 205
5 DISCLOSURE REQUIREMENTS ..................................................................... 206
5.1
Requirements of IFRS 5 ..................................................................................... 206
5.2
Disclosures required by standards other than IFRS 5 .................................. 207
6 FUTURE DEVELOPMENTS ............................................................................ 208
List of examples
Example 4.1:
Meaning of ‘available for immediate sale’ ....................................... 186
Example 4.2:
Exceptions to the ‘one year rule’ ....................................................... 189
Example 4.3:
Measuring and presenting subsidiaries acquired with a
view to sale and classified as held for sale ....................................... 193
Example 4.4:
Allocation of impairment loss to the components of a
disposal group ......................................................................................... 194
Example 4.5:
Presenting non-current assets or disposal groups classified
as held for sale ....................................................................................... 197
Example 4.6:
Discontinued operation arising from abandonment ..................... 201
Example 4.7:
Presenting discontinued operations ............................
.................... 202
183
Chapter 4
Non-current assets held
for sale and discontinued
operations
1
OBJECTIVE AND SCOPE OF IFRS 5
The objective of IFRS 5 – Non-current Assets Held for Sale and Discontinued
Operations – is to specify the accounting for assets held for sale, and the presentation
and disclosure of discontinued operations. In particular, the standard requires that non-
current assets (and, in a ‘disposal group’, related liabilities and current assets, discussed
at 2.1.1 below) meeting its criteria to be classified as held for sale be:
(a) measured at the lower of carrying amount and fair value less costs to sell, with
depreciation on them ceasing; and
(b) presented separately on the face of the statement of financial position with the
results of discontinued operations presented separately in the statement of
comprehensive income. [IFRS 5.1].
The classification and presentation requirements apply to all recognised non-current
assets and disposal groups, while there are certain exceptions to the measurement
provisions of the standard. [IFRS 5.2, 5]. These issues are discussed further at 2.2 below.
The classification, presentation and measurement requirements of IFRS 5 applicable to
assets (or disposal groups) classified as held for sale also apply to those classified as held
for distribution to owners acting in their capacity as owners. [IFRS 5.5A]. This is discussed
at 2.1.2 below.
2
NON-CURRENT ASSETS (AND DISPOSAL GROUPS) HELD
FOR SALE OR HELD FOR DISTRIBUTION TO OWNERS
2.1
Classification of non-current assets (and disposal groups) held
for sale or held for distribution to owners
IFRS 5 frequently refers to current assets and non-current assets. It provides a
definition of each term as follows:
184 Chapter
4
‘An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it in its normal
operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in IAS 7 – Statement of Cash
Flows) unless the asset is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting period.’
A non-current asset is ‘an asset that does not meet the definition of a current asset’.
[IFRS 5 Appendix A].
These definitions are the same as those in IAS 1 – Presentation of Financial Statements
(discussed in Chapter 3 at 3.1.1).
2.1.1
The concept of a disposal group
As its title suggests, IFRS 5 addresses the accounting treatment of non-current assets
held for sale, that is assets whose carrying amount will be recovered principally through
sale rather than continuing use in the business. [IFRS 5.6]. However, the standard also
applies to certain liabilities and current assets where they form part of a ‘disposal group’.
The standard observes that sometimes an entity will dispose of a group of assets,
possibly with some directly associated liabilities, together in a single transaction.
[IFRS 5.4]. A common example would be the disposal of a subsidiary. For these
circumstances, IFRS 5 introduces the concept of a disposal group, which it defines as a
group of assets to be disposed of, by sale or otherwise, together as a group in a single
transaction, and liabilities directly associated with those assets that will be transferred
in the transaction. The group includes goodwill acquired in a business combination if
the group is a cash-generating unit to which goodwill has been allocated in accordance
with the requirements of IAS 36 – Impairment of Assets (discussed in Chapter 20) or if
it is an operation within such a cash-generating unit. [IFRS 5 Appendix A].
The use of the phrase ‘together in a single transaction’ indicates that the only liabilities
that can be included in the group are those assumed by the purchaser. Accordingly, any
borrowings of the entity which are to be repaid out of the sales proceeds would be
excluded from the disposal group.
The standard goes on to explain that a disposal group:
• may be a group of cash-generating units, a single cash-generating unit, or part of a
cash-generating unit. Once the cash flows from an asset or group of assets are
expected to arise principally from sale rather than continuing use, they become
less dependent on cash flows arising from other assets, and a disposal group that
was part of a cash-generating unit becomes a separate cash-generating unit; and
• may include any assets and any liabilities of the entity, including current assets,
current liabilities and assets outside the scope of the measurement requirements
of IFRS 5 (see 2.2 below). [IFRS 5.4].
Discontinued operations are discussed at 3 below. As noted there, it seems highly
unlikely that the definition of a discontinued operation would ever be met by a
Non-current assets held for sale and discontinued operations 185
single non-current asset. Accordingly, a discontinued operation will also be a
disposal group.
2.1.2
Classification as held for sale or as held for distribution to owners
IFRS 5 requires a non-current asset (or disposal group) to be classified as held for sale if
its carrying amount will be recovered principally through a sale transaction rather than
through continuing use. [IFRS 5.6]. For these purposes, sale transactions include exchanges
of non-current assets for other non-current assets when the exchange has commercial
substance in accordance with IAS 16 – Property, Plant and Equipment (discussed in
Chapter 18 at 4.4). [IFRS 5.10]. For assets classified according to a liquidity presentation (see
Chapter 3 at 3.1.1), non-current assets are taken to be assets that include amounts
expected to be recovered more than twelve months after the reporting date. [IFRS 5.2].
Determining whether (and when) an asset stops being recovered principally through
use and becomes recoverable principally through sale is the critical distinction, and
much of the standard is devoted to explaining how to make the determination.
For an asset (or disposal group) to be classified as held for sale:
(a) it 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);
(b) its sale must be highly probable; [IFRS 5.7] and
(c) it must genuinely be sold, not abandoned. [IFRS 5.13].
These criteria are discussed further below. If an asset (or disposal group) has been
classified as held for sale, but these criteria cease to be met, an entity should cease to
classify the asset (or disposal group) as held for sale. [IFRS 5.26]. Changes in disposal plans
are discussed at 2.2.5 below.
Slightly different criteria apply when an entity acquires a non-current asset (or disposal
group) exclusively with a view to its subsequent disposal. In that case it should only
classify the non-current asset (or disposal group) as hel
d for sale at the acquisition date if:
• the ‘one-year requirement’ is met subject to its one exception (this is part of being
‘highly probable’, discussed at 2.1.2.B below); and
• it is highly probable that any other criteria in (a) and (b) above that are not met at
that date will be met within a short period following the acquisition (usually within
three months). [IFRS 5.11].
The standard also makes it clear that the criteria in (a) and (b) above must be met at the
reporting date for a non-current asset (or disposal group) to be classified as held for sale
in those financial statements. However, if those criteria are met after the reporting date
but before the authorisation of the financial statements for issue, the standard requires
certain additional disclosures (discussed at 5 below). [IFRS 5.12].
The classification, presentation and measurement requirements of IFRS 5 applicable to
assets (or disposal groups) classified as held for sale also apply to those classified as held
for distribution to owners acting in their capacity as owners. [IFRS 5.5A]. This applies
when an entity is committed to distribute the asset (or disposal group) to its owners. For
this to be the case, the assets must be available for immediate distribution in their
present condition and the distribution must be highly probable.
186 Chapter
4
2.1.2.A
Meaning of available for immediate sale
To qualify for classification as held for sale, a non-current 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). This is taken to mean
that an entity currently has the intention and ability to transfer the asset (or disposal
group) to a buyer in its present condition. The standard illustrates this concept with the
following examples. [IFRS 5.IG1-3].
Example 4.1:
Meaning of ‘available for immediate sale’
1
Disposal of a headquarters building
An entity is committed to a plan to sell its headquarters building and has initiated actions to locate a buyer.
(a) The entity intends to transfer the building to a buyer after it vacates the building. The time necessary to
vacate the building is usual and customary for sales of such assets. The criterion of being available for