by a single non-current asset (for example, a single building or single equity-
Non-current assets held for sale and discontinued operations 201
accounted investment). Accordingly, a discontinued operation will also be a ‘disposal
group’ which is 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 (discussed at 2.1.1 above).
The meaning of ‘separate major line of business or geographical area’ was raised with
the Interpretation Committee. It concluded, in January 2016, that it could not provide
additional clarity on this matter, and decided it should be considered for a broad-scope
project on IFRS 5 (possible future developments of IFRS 5 are discussed at 6 below).4
In the meantime, judgement will be required.
As discussed at 2.1.2.C above, IFRS 5 stipulates that a non-current asset (or disposal
group) that is to be abandoned should not be classified as held for sale. This includes
non-current assets (or disposal groups) that are to be used to the end of their economic
life and non-current assets (or disposal groups) that are to be closed rather than sold.
However, if the disposal group to be abandoned meets the criteria above for being a
discontinued operation the standard requires it to be treated as such ‘at the date on
which it ceases to be used.’ [IFRS 5.13]. In other words, the treatment as discontinued only
starts in the period when abandonment actually occurs (see Example 4.6 below).
A non-current asset that has been temporarily taken out of use should not be accounted
for as if it had been abandoned. [IFRS 5.14]. Accordingly it would not be disclosed as a
discontinued operation. The standard provides an illustration of a discontinued operation
arising from abandonment upon which the following example is based. [IFRS 5.IG9].
Example 4.6:
Discontinued operation arising from abandonment
In October 2018 an entity decides to abandon all of its cotton mills, which constitute a major line of business.
All work stops at the cotton mills during the year ended 31 December 2019. In the financial statements for the
year ended 31 December 2018, results and cash flows of the cotton mills are treated as continuing operations.
In the financial statements for the year ended 31 December 2019, the results and cash flows of the cotton mills
are treated as discontinued operations and the entity makes the disclosures required (see 3.2 below).
3.2
Presentation of discontinued operations
IFRS 5 requires the presentation of a single amount on the face of the statement of
comprehensive income comprising the total of:
(a) the post-tax profit or loss of discontinued operations; and
(b) the post-tax gain or loss recognised on the measurement to fair value less costs to
sell or on the disposal of the assets or disposal group(s) constituting the
discontinued operation. [IFRS 5.33(a)].
This single amount should be further analysed (either on the face of the statement or in
the notes) into:
(a) the revenue, expenses and pre-tax profit or loss of discontinued operations;
(b) the gain or loss recognised on the measurement to fair value less costs to sell or on the
disposal of the assets or disposal group(s) constituting the discontinued operation; and
(c) separately for each of (a) and (b) the related income tax expense as required by
IAS 12 (see Chapter 29 at 14.6).
202 Chapter
4
The analysis is not required for disposal groups that are newly acquired subsidiaries that
meet the criteria to be classified as held for sale on acquisition (see 2.2.2 above). [IFRS 5.33(b)].
If the required analysis is presented on the face of the statement of comprehensive
income it should be presented in a section identified as relating to discontinued
operations, i.e. separately from continuing operations. [IFRS 5.33A]. The standard also
makes clear that any gain or loss on the remeasurement of a non-current asset (or
disposal group) classified as held for sale that does not meet the definition of a
discontinued operation should not be included within these amounts for discontinued
operations, but be included in profit or loss from continuing operations. [IFRS 5.37].
IFRS 5 requires disclosure of the amount of income from continuing operations and
discontinued operations attributable to owners of the parent. This may be given either
in the notes or on the face of the statement of comprehensive income. [IFRS 5.33(d)].
IFRS 5 requires that all the above disclosures be re-presented for prior periods presented
in the financial statements so that the disclosures relate to all operations that have been
discontinued by the reporting date for the latest period presented. [IFRS 5.34]. Accordingly,
adjustments to the comparative information as originally reported will be necessary for
those disposal groups categorised as discontinued operations. Comparative information
relating to discontinued operations is discussed further at 4 below.
The implementation guidance accompanying IFRS 5 provides the following illustration
of the presentation of discontinued operations. [IFRS 5.IG11]. (Note that the illustrative
example assumes that the entity did not recognise any components of other
comprehensive income in the periods presented.)
Example 4.7:
Presenting discontinued operations
XYZ GROUP – STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2019 (illustrating the classification of expenses by function)
(in thousands of Euros)
2019
2018
Continuing operations
Revenue
×
×
Cost of sales
(×)
(×)
Gross profit
×
×
Other income
×
×
Distribution costs
(×)
(×)
Administrative expenses
(×)
(×)
Other expenses
(×)
(×)
Finance costs
(×)
(×)
Share of profit of associates
×
×
Profit before tax
×
×
Income tax expense
(×)
(×)
Profit for the period from continuing operations
×
×
Discontinued operations
Profit for the period from discontinued operations*
×
×
Profit for the period
×
×
Non-current assets held for sale and discontinued operations 203
Attributable to:
Owners of the parent
Profit for the period from continuing operations
×
×
Profit for the period from discontinued operations
×
×
Profit for the period attributable to owners of the parent
×
×
Non-controlling interest
Profit for the period from continuing operation
×
×
Profit for the p
eriod from discontinued operations
×
×
Profit for the period attributable to non-controlling interests
×
×
×
×
* The required analysis would be given in the notes.
The above reflects the requirement to disclose the amount of income from continuing
operations and discontinued operations attributable to owners of the parent. It is
noteworthy that the standard’s illustrative example goes beyond what is strictly required
by also giving an equivalent analysis for income attributable to non-controlling interests.
Adjustments in the current period to amounts previously presented in discontinued
operations that are directly related to the disposal of a discontinued operation in a prior
period should be classified separately in discontinued operations. The nature and
amount of the adjustments should be disclosed. Examples given by the standard of
circumstances in which these adjustments may arise include the following:
(a) the resolution of uncertainties that arise from the terms of the disposal transaction,
such as the resolution of purchase price adjustments and indemnification issues
with the purchaser;
(b) the resolution of uncertainties that arise from and are directly related to the
operations of the component before its disposal, such as environmental and
product warranty obligations retained by the seller; and
(c) the settlement of employee benefit plan obligations, provided that the settlement
is directly related to the disposal transaction. [IFRS 5.35].
In addition, IFRS 5 requires disclosure of the net cash flows attributable to the
operating, investing and financing activities of discontinued operations. The standard
allows that these disclosures may be presented either in the notes or on the face of the
financial statements. These disclosures are not required for disposal groups that are
newly acquired subsidiaries that meet the criteria to be classified as held for sale on
acquisition (see 2.2.2 above). [IFRS 5.33(c)].
As a discontinued operation will also be a disposal group, the requirements regarding
presentation of disposal groups in the statement of financial position (discussed at 2.2.4
above) also apply to discontinued operations.
3.3
Trading between continuing and discontinued operations
Notwithstanding the one line presentation discussed above, discontinued operations
remain consolidated in group financial statements. That means any transactions
between discontinued and continuing operations are eliminated as usual in the
consolidation. As a consequence, the amounts ascribed to the continuing and
discontinued operations will be income and expense only from transactions with
204 Chapter
4
counterparties external to the group. Importantly, this means that (unless additional
disclosure is presented) the results presented on the face of the statement of
comprehensive income will not necessarily represent the activities of the operations as
individual entities, particularly when there has been significant trading between the
continuing and discontinued operations. Some might consider the results for the
continuing and discontinued operations on this basis to be of little use to readers of
accounts. An argument could be made that allocating external transactions to or from
the discontinued operation would yield more meaningful information.
The Interpretation Committee discussed this matter and published its agenda decision in
January 2016.5 In that decision the committee includes the following. ‘The Interpretations
Committee noted that neither IFRS 5 nor IAS 1 includes requirements regarding the
presentation of discontinued operations that override the consolidation requirements in
IFRS 10 – Consolidated Financial Statements. The Interpretations Committee also noted
that paragraph B86(c) of IFRS 10 requires elimination of, among other things, income and
expenses relating to intragroup transactions, and not merely intragroup profit.
Consequently, the Interpretations Committee observed that not eliminating intragroup
transactions would be inconsistent with the elimination requirements of IFRS 10.’
The Committee went on to observe: ‘The Interpretations Committee also noted that
paragraph 30 of IFRS 5 requires an entity to present and disclose information that
enables users of the financial statements to evaluate the financial effects of discontinued
operations and disposal activity. In the light of this objective, the Interpretations
Committee observed that, depending on the particular facts and circumstances, an
entity may have to provide additional disclosures in order to enable users to evaluate
the financial effects of discontinued operations.’
4 COMPARATIVE
INFORMATION
As discussed in Chapter 3 at 2.4, IAS 1 requires the presentation of comparative
information. IFRS 5 deals with the particular requirements for non-current assets held
for sale (and disposal groups) and discontinued operations.
Entities will need to consider whether any (and, if so, what) changes are necessary to
comparative information as previously reported whenever:
• non-current assets or disposal groups first become classified as such; and
• that classification ceases.
4.1
Treatment of comparative information on initial classification as
held for sale
4.1.1
The statement of comprehensive income
For non-current assets and disposal groups not qualifying as discontinued operations there
are no special requirements relating to presentation in the statement of comprehensive
income, accordingly no restatement of comparative amounts would be relevant.
When a component of an entity becomes classified as a discontinued operation, separate
presentation of the total of its results for the period and any gain or loss on remeasurement
Non-current assets held for sale and discontinued operations 205
is required on the face of the statement (see 3.2 above). IFRS 5 requires that these disclosures
be re-presented for prior periods presented in the financial statements so that the disclosures
relate to all operations that have been discontinued by the reporting date for the latest period
presented. [IFRS 5.34]. Accordingly, adjustments to the comparative information as originally
reported will be necessary for those disposal groups categorised as discontinued operations.
4.1.2
The statement of financial position
IFRS 5 states that an entity shall not reclassify or re-present amounts presented for non-
current assets or for the assets and liabilities of disposal groups classified as held for sale in
the statements of financial position for prior periods to reflect the classification in the
statement of financial position for the latest period presented. [IFRS 5.40]. The standard has
no separate requirements relating to the statement of financial position for a disposal group
also qualifying as a discontinued operation and accordingly comparatives are not adjusted.
4.2
Treatment of comparative information on the cessation of
classification as held for sale
As discussed at 2.2.5 above, when a non-current asset
ceases to be classified as held for
sale the measurement basis for it reverts to what it would have been if it had not been
so classified at all (or recoverable amount if lower). Typically this would require a
‘catch-up’ depreciation charge as depreciation would not have been accounted for
while it was held for sale. The standard explicitly requires this to be a current year
charge. [IFRS 5.28]. This seems to indicate that for non-current assets and disposal groups
ceasing to be so classified the measurement of items in comparative information
(statement of comprehensive income and statement of financial position) should not be
revisited. This requirement applies equally to discontinued operations.
The above is supplemented with the following. ‘Financial statements for the periods
since classification as held for sale shall 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 entity shall present that adjustment in the same caption in the statement
of comprehensive income’ within continuing operations used to record any gains and
losses on non-current assets (or disposal groups) held for sale. [IFRS 5.28, 37].
IAS 28 clarifies that, as regards associates and joint ventures, the amendment of financial
statements ‘for the periods since classification as held for sale’ means retrospectively from
the date of its original classification as held for sale. [IAS 28.21]. This clarification is not
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 41
