International Financial Reporting Standard 5
Non-current Assets Held for Sale and Discontinued Operations

 

In April 2001 the International Accounting Standards Board (IASB) adopted IAS 35 Discontinuing Operations, which had originally been issued by the International Accounting Standards Committee in June1998.

In March 2004 the IASB issued IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to replace IAS 35.Other IFRSs have made minor consequential amendments to IFRS 5. They include

Improvement to IFRSs (issued April 2009), IFRS 9 Financial Instruments (issued November 2009 and October 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011), Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (issued October 2012) and IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013).

 

 

 

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15

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37

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45

OBJECTIVE

SCOPE

 

CLASSIFICATION OF NON-CURRENT ASSETS (OR DISPOSAL GROUPS) AS

HELD FOR SALE OR AS HELD FOR DISTRIBUTION TO OWNERS

Non-current assets that are to be abandoned

MEASUREMENT OF NON-CURRENT ASSETS (OR DISPOSAL GROUPS)

CLASSIFIED AS HELD FOR SALE

Measurement of a non-current asset (or disposal group)

Recognition of impairment losses and reversals

Changes to a plan of sale

PRESENTATION AND DISCLOSURE Presenting discontinued operations

Gains or losses relating to continuing operations

Presentation of a non-current asset or disposal group classified as held for sale

Additional disclosures

TRANSITIONAL PROVISIONS

EFFECTIVE DATE

WITHDRAWAL OF IAS 35

APPENDICES

A Defined terms

B Application supplement

 

International Financial Reporting Standard 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) is set out in paragraphs 1-45 and Appendices A-C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles.

Terms defined in Appendix A are in italics the first time they appear in the Standard.

Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 5 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

International Financial Reporting Standard 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) sets out requirements for the classification, measurement and presentation of non-current assets held for sale and replaces

IAS 35 Discontinuing Operations.

Achieving convergence of accounting standards around the world is one of the prime objectives of the International Accounting Standards Board. In pursuit of that objective, one of the strategies adopted by the Board has been to enter into a memorandum of understanding with the Financial Accounting Standards Board (FASB) in the United States that sets out the two boards' commitment to convergence. As a result of that understanding the boards have undertaken a joint short-term project with the objective of reducing differences between IFRSs and US GAAP that are capable of resolution in a relatively short time and can be addressed outside major projects.

 

One aspect of that project involves the two boards considering each other's recent standards with a view to adopting high quality accounting solutions. The IFRS arises from the IASB's consideration of FASB Statement No. 144 Accounting

for the Impairment or Disposal of Long-Lived Assets (SFAS 144), issued in 2001.

 

SFAS 144 addresses three areas: (i) the impairment of long-lived assets to be held and used, (ii) the classification, measurement and presentation of assets held for sale and (iii) the classification and presentation of discontinued operations. The impairment of long-lived assets to be held and used is an area in which there are extensive differences between IFRSs and US GAAP. However, those differences were not thought to be capable of resolution in a relatively short time. Convergence on the other two areas was thought to be worth pursuing within the context of the short-term project.

 

The IFRS achieves substantial convergence with the requirements of SFAS 144 relating to assets held for sale, the timing of the classification of operations as discontinued and the presentation of such operations

adopts the classification 'held for sale'.

introduces the concept of a disposal group, being 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.

 

specifies that assets or disposal groups that are classified as held for sale are carried at the lower of carrying amount and fair value less costs to sell.

specifies that an asset classified as held for sale, or included within a disposal group that is classified as held for sale, is not depreciated.

specifies that an asset classified as held for sale, and the assets and

liabilities included within a disposal group classified as held for sale, are presented separately in the statement of financial position.

withdraws IAS 35 Discontinuing Operations and replaces it with

requirements that:

change the timing of the classification of an operation as

discontinued. IAS 35 classified an operation as discontinuing at the earlier of (a) the entity entering into a binding sale agreement and (b) the board of directors approving and announcing a formal disposal plan. The IFRS classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation.

specify that the results of discontinued operations are to be

shown separately in the statement of comprehensive income.

prohibit retroactive classification of an operation as

discontinued, when the criteria for that classification are not met until after the reporting period

The objective of this IFRS is to specify the accounting for assets held for sale, and

the presentation and disclosure of discontinued operations. In particular, the IFRS

requires:

 

assets that meet the criteria to be classified as held for sale to be

measured at the lower of carrying amount and fair value less costs to sell,

and depreciation on such assets to cease; and

assets that meet the criteria to be classified as held for sale to be

presented separately in the statement of financial position and the results of discontinued operations to be presented separately in the statement of comprehensive income

The classification and presentation requirements of this IFRS apply to all recognised non-current assets1 and to all disposal groups of an entity. The

measurement requirements of this IFRS apply to all recognised non-current assets and disposal groups (as set out in paragraph 4), except for those assets listed in paragraph 5 which shall continue to be measured in accordance with the Standard noted.

 

Assets classified as non-current in accordance with IAS 1 Presentation of Financial Statements shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this IFRS. Assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale shall not be classified as current unless they meet the criteria to be classified as held for sale in accordance with this IFRS.

 

Sometimes an entity disposes of a group of assets, possibly with some directly associated liabilities, together in a single transaction. Such a disposal group may be a group of cash-generating units, a single cash-generating unit, or part of a

cash-generating unit.2 The group may include any assets and any liabilities of the entity, including current assets, current liabilities and assets excluded by paragraph 5 from the measurement requirements of this IFRS. If a non-current asset within the scope of the measurement requirements of this IFRS is part of a disposal group, the measurement requirements of this IFRS 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. The requirements for measuring the individual assets and liabilities within the disposal group are set out in paragraphs 18, 19 and 23.

The measurement provisions of this IFRS do not apply to the following assets,

which are covered by the IFRSs listed, either as individual assets or as part of a

disposal group

 

deferred tax assets (IAS 12 Income Taxes).

assets arising from employee benefits (IAS 19 Employee Benefits). financial assets within the scope of IFRS 9 Financial Instruments.

non-current assets that are accounted for in accordance with the fair

value model in IAS 40 Investment Property.

non-current assets that are measured at fair value less costs to sell in

accordance with IAS 41 Agriculture.

contractual rights under insurance contracts as defined in IFRS 4

Insurance Contracts.

The classification, presentation and measurement requirements in this IFRS applicable to a non-current asset (or disposal group) that is classified as held for sale apply also to a non-current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners (held for distribution to owners).

 

This IFRS specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. Disclosures in other IFRSs do not apply to such assets (or disposal groups) unless

those IFRSs require

specific disclosures in respect of non-current assets (or disposal groups)

classified as held for sale or discontinued operations; or

 

disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and such disclosures are not already provided in the other notes to the financial statements.

Additional disclosures about non-current assets (or disposal groups) classified as held for sale or discontinued operations may be necessary to comply with the general requirements of IAS 1, in particular paragraphs 15 and 125 of that Standard.

Classification of non-current assets (or disposal groups) as held

for sale or as held for distribution to owners

An entity shall classify a non-current asset (or disposal group) as held for

sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

For this to be the case, the 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) and its sale must be highly probable.

For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The probability of shareholders' approval (if required in the jurisdiction) should be considered as part of the assessment of whether the sale is highly probable.

An entity that is committed to a sale plan involving loss of control of a subsidiary shall classify all the assets and liabilities of that subsidiary as held for sale when the criteria set out in paragraphs 6-8 are met, regardless of whether the entity will retain a non-controlling interest in its former subsidiary after the sale.

Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale does not preclude an asset (or disposal group) from being classified as held for sale if the delay is caused by events or circumstances beyond the entity's control and there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group). This will be the case when the criteria in Appendix B are met.

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.

When an entity acquires a non-current asset (or disposal group) exclusively with a view to its subsequent disposal, it shall classify the non-current asset (or disposal group) as held for sale at the acquisition date only if the one-year requirement in paragraph 8 is met (except as permitted by paragraph 9) and it is highly probable that any other criteria in paragraphs 7 and 8 that are not met at that date will be met within a short period following the acquisition (usually within three months)

If the criteria in paragraphs 7 and 8 are met after the reporting period, an entity shall not classify a non-current asset (or disposal group) as held for sale in those financial statements when issued. However, when those criteria are met after the reporting period but before the authorisation of the financial statements for issue, the entity shall disclose the information specified in paragraph 41(a), (b) and (d) in the notes.

A non-current asset (or disposal group) is classified as held for distribution to owners when the entity is committed to distribute the asset (or disposal group) to the owners. For this to be the case, the assets must be available for immediatedistribution in their present condition and the distribution must be highly probable. For the distribution to be highly probable, actions to complete the distribution must have been initiated and should be expected to be completed within one year from the date of classification. Actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn. The probability of shareholders' approval (if required in the jurisdiction) should be considered as part of the assessment of whether the distribution is highly probable

that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. However, if the disposal group to be abandoned meets the criteria in paragraph 32(a)-(c), the entity shall present the results and cash flows of the disposal group as discontinued operations in accordance with paragraphs 33 and 34 at the date on which it ceases to be used. Non-current assets (or disposal groups) to be abandoned include 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.

An entity shall not account for a non-current asset that has been temporarily taken out of use as if it had been abandoned.

Measurement of non-current assets (or disposal groups)

classified as held for sale

If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale (see paragraph 11), applying paragraph 15 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. Hence, if the asset (or disposal group) is acquired as part of a business combination, it shall be measured at fair value less costs to sell.

When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing cost.

Immediately before the initial classification of the asset (or disposal group) as held for sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall be measured in accordance with applicable IFRSs.

On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that are not within the scope of the measurement requirements of this IFRS, but are included in a disposal group classified as held for sale, shall be remeasured in accordance with applicable IFRSs before the fair value less costs to sell of the disposal group is remeasured.

Recognition of impairment losses and reversals

An entity shall recognise an impairment loss for any initial or subsequent

write-down of the asset (or disposal group) to fair value less costs to sell, to the extent that it has not been recognised in accordance with paragraph 19.

An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognised either in accordance with this IFRS or previously in accordance with IAS 36 Impairment of Assets.

An entity shall recognise a gain for any subsequent increase in fair value less

costs to sell of a disposal group:

(a)to the extent that it has not been recognised in accordance with

paragraph 19; but

(b)not in excess of the cumulative impairment loss that has been recognised, either in accordance with this IFRS or previously in accordance with IAS 36, on the non-current assets that are within the scope of the measurement requirements of this IFRS.

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