Summary
Summary IFRS 5 Non-current assets held for sale and discontinued operations
- Course
- Financial Accounting 379
- Institution
- Stellenbosch University (SUN)
Summary of IFRS 5 for third year BAcc course
[Show more]
Content preview
IFRS 5: NON-CURRENT ASSETS HELD FOR SALE ANDDISCONTINUED OPERATIONS:
IFRS 5 & IAS 37. See also IAS 1 and IAS 12.
Appendix A (definitions); Appendix B (hons); Appendix: Guidance (example 1-3, 10, 11, 13 – SS)
OBJECTIVE: (Par .01)
SCOPE (Par .02-.05)
− .05: Excluded from the measurement provisions of IFRS 5 – measured in terms of own standard, but can be
part of a disposal group
Definitions:
▪ Component: Par .31
▪ Disposal group: Appendix A
o Assets: Current and non-current
o Includes associated liabilities → instalment agreement will form part of the disposal group
o Sold in a single transaction
▪ Discontinued operation: Par .32
E.g. Woolworths (1 Entity) has various components, including Foodshop, House and Clothes, each with its own assets
and liabilities. Further Foodshop is split into Paarl Engen, Stellenbosch and Wellington. It is possible to sell the Paarl
foodshop separately. The assets and liabilities of Paarl Engen = disposal group (disposed in a single transaction).
Should it comply with the requirements “classified as Held for sale” →can be a discontinued operation.
CLASSIFICATION OF NON-CURRENT ASSETS (OR DISPOSAL GROUPS) AS HELD FOR SALE (Par .06-.14)
− Can be a single non-current asset, i.e. one of the freezers in Paarl Engen WW or a disposal group, i.e. the entire
store
− “available for immediate sale”: Entity must have the ability and intention to transfer that asset in its present
location and condition
− “highly probable”: More than likely – a fair degree of certainty. Par .08 requirements
o Guidance example 4 and Question 1
Question 1(a):
Dice Ltd. is a company with a number of diversified operations. During the financial year ended 28 February
2012, there was a serious decline in the operations of the clothing industry and on 15 January 2012, the
directors decided to discontinue this operation and sell it early in the beginning of the new financial year.
Required: Discuss with reference to all requirements (and reasons) if the proposed sale of the clothing
operations meet the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
and if so, from which date.
(a) A component: Operations and cash flows that can be clearly distinguished, operationally and for
financial reporting purposes from the rest of the entity (.31)
Application: The clothing operation is a component of Dice Ltd. which can be clearly distinguished from
the rest of the entity
A disposal group is a group of assets to be disposed of by means of sale or otherwise, together as a
group in a single transaction, and the liabilities directly associated with those assets that will be
transferred in the transaction.
Application: The net assets of the clothing operations meet the criteria for a disposal group, because
the assets can be sold as a group in a single transaction.
Discontinued operation:
– A component of an entity
– that either has been disposed of or
– is classified as held for sale and that
1
, ◼ represents a separate major line of business or geographical area of operations or
◼ is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations or
◼ is a subsidiary acquired exclusively with a view to resale. (.32)
The clothing operations will be regarded in term of IFRS 5 as discontinued operations as soon as it is
regarded as a disposal group which has been classified as “held for sale”.
To be classified as “held for sale”, the carrying value of the disposal group must be recovered principally
through the sale rather than the continuing use.(Par .06)
2 requirements: For this to be the case, the disposal group must be [1] available for sale immediately
and the sale must be [2] highly probable.
The disposal group in this case is immediately available for sale on 1 February 2012.
For the sale to be highly probable ALL OF the following criteria must be met: (Par .08) [fact and
application]
(i) The appropriate level of management must be committed to a plan to sell the disposal group –
in this case the directors decided to sell the group. [Usually directors]
(ii) An active programme to locate a buyer and complete the plan must have been initiated. – A
task team has been appointed and immediately started to locate a buyer.
(iii) The asset must be actively marketed for sale at a price that is reasonable in relation to the
current fair value [market value] of the disposal group. – The task team is busy marketing the
assets at a fair value and there is a probable buyer.
(iv) The sale must qualify for recognition as a completed sale within 1 year from the date of
classification as “held for sale” – this sale is expected to be recognised as sold on 30 April 2012.
This is within 3 months of the possible classification date and therefore meets the within 1 year
requirement.
(v) It must be unlikely that changes would be made to the sales plan. - On 1 February 2012, it was
unlikely that any changes would be made to the sales plan.
Conclusion: On 1 February 2012, the criteria for classification "held for sale" were met and from that
date, the clothing operation must be handled as a discontinued operation.
− Par .11: Asset acquired for disposal
o (i) If recognized as complete sale within one-year &
o (ii) If requirements of par .7 and .8 are met within 3 months
o Guidance example 13
− Classification only met after the reporting period
− Par .12: Non-adjustment event (IAS Events after the reporting period)
o Disclose: Description, facts and circumstances and their reportable segment (Note)
− Non-current assets that are to be abandoned (Par.13-.14)
MEASUREMENT (Par .15-.29)
− “Fair value” definition: Appendix A
− “Costs to sell” definition: Appendix A
− When the sale is expected to occur beyond one year, the entity shall adjust the costs to sell
o Present value = SP
o Financing cost (.17) = Contract price – SP
RECOGNITION OF IMPAIRMENT LOSSES AND REVERSALS (Par .20-.25)
− Loss with re-measuring
− Par .23: Allocation order: 104(a) – GW; (b) – Other
o Guidance example 10
o NB: IAS 36 in the order of: first goodwill in full, then other assets based on their carrying value;
proportionally allocated
− Par .21-.22
o NB: IAS 36 – With increase at later stage, allocate first to other assets and not to goodwill. What if
increase is more than initial loss with re-measuring?
2
, − Par .24 & .25
o Par .24: Gain or loss directly in P/L
▪ See Question 2 (c)(ii)
o Par .25: No depreciation or amortisation
Provisions: Recognition and measurement: IAS 37
Nb: Refer to notes of IAS 37.
CHANGES TO A PLAN OF SALE (Par 26-29 (Hons))
PRESENTATION AND DISCLSOURE (Par .30 →)
− See IAS 12 Par 81(h) show seperately:
o The tax expense relating to the gain or loss on discontinuance; and,
o The tax expense relating to the profit or loss from the ordinary activities of the discontinued operation
for the period, together with the corresponding amounts for each prior period presented
01-Jan 01-Mar 31-Dec (JE)
Normal IFRS Par.18 Clas.date Par.6-8 Year end: Par.15,19
Measure Par.15 IFRS 5 assets: FV - SC
Lowest
CV FV-SC Loss on re-
measurem Par. 20-23
Loss on re- Par.20
measureme
Disclose
Single asset: ✓ Par.37, 38-41
Disposal group: ✓ Par.37, 38-41
Disc.operations: ✓ Par.30-36 *
Par.38-41
* IAS1, par.82(ea)
One line item + notes
01-Mar: Classification (Initial)
31-Dec: Subsequent – If not yet disposed of
Applicable IFRS for current assets for their applicable values (excluding non-current assets – IFRS 5)
Disposal group: (Measure at FV – SC)
Par .20-.23: Reversal
Disposal group:
Building (IAS 16)
Inventory (IAS 2)
Debtor (IFRS 9) → Specifically excluded from measurement provisions of IFRS 5
But it forms part of the group that is being sold. If you at least have one item in the group of assets
and liabilities of which the measurement falls within the scope of IFRS 5 → whole group still seen as
a disposal group and will be measured according to IFRS 5.
Measure CA ito applicable IFRS before classification date.
On classification: Measure the entire disposal group as a whole at the lower of CA (total) or FV - CTS
After reclassification, CA:
Non-current Asset, i.e. Building → IFRS 5
Current Assets/liabilities, i.e. inv (IAS 2) + debtor (IFRS 9)
3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller stelliesaccounting. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R60,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
79373 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now