IFRS 5, Non-current Assets Held for Sale and Discontinued Operations issued by the IASB in March 2004 replacing IAS 35, deals with the measurement and presentation in the statement of financial position of non-current assets (and disposal groups) held for sale. It also covers the presentation of discontinued operations in the statement of comprehensive income.
As stated in ‘Objective’, 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 overall principle of IFRS 5 as stated in paragraph 5 of IFRS 5 is that 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.
The Standard specifies certain requirements and conditions that must be met for a non-current asset (or disposal group) to be classified as held for sale.
The two general requirements are as stated in paragraph 7 of IFRS 5 :
- 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
Appendix A of IFRS 5 defines “highly probable’ as significantly more likely than probable, where ‘probable’ means more likely than not.
Based on paragraph 8 of IFRS 5, several specific conditions must be satisfied for the sale of a non-current asset (or disposal group) to qualify as highly probable :
- the appropriate level of management must be committed to a plan to sell the asset (or disposal group);
- an active programme to locate a buyer and complete the plan must have been initiated;
- the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value;
- except as permitted by paragraph 9, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, 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.
Paragraph 9 of IFRS 5 explains that 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).
If an entity has classified an asset (or disposal group) as held for sale, but the criteria in paragraphs 7-9 are no longer met, the entity shall cease to classify the asset (or disposal group) as held for sale (paragraph 26 of IFRS 5) (Hrd).
