Day 25: IFRS 5 – Non-current Assets Held for Sale & Discontinued Operations
Introduction
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, is a standard that provides guidance on the accounting and disclosure requirements for non-current assets held for sale and discontinued operations. The standard aims to ensure that entities provide transparent and consistent information about their non-current assets held for sale and discontinued operations, which is essential for investors and other stakeholders to make informed decisions.
Criteria for Held-for-Sale Classification
To classify a non-current asset as held for sale, an entity must meet certain criteria. These criteria include:
- The asset must be available for immediate sale: The asset must be available for sale in its present condition, and the sale must be expected to be completed within a year.
- The asset must be actively marketed: The entity must be actively marketing the asset for sale, and the asset must be exposed to the market.
- The sale of the asset must be probable: The sale of the asset must be probable, and the entity must be committed to selling the asset.
- The asset must be expected to be sold within a year: The asset must be expected to be sold within a year, and the entity must be actively working to complete the sale.
If an entity meets these criteria, it can classify the non-current asset as held for sale and measure it at the lower of its carrying amount and fair value less costs to sell.
Discontinued Operations Disclosures
A discontinued operation is a component of an entity that has been disposed of or is classified as held for sale. When an entity discontinues a operation, it must provide certain disclosures in its financial statements. These disclosures include:
- A description of the discontinued operation: The entity must provide a description of the discontinued operation, including the reasons for the discontinuation.
- The results of the discontinued operation: The entity must disclose the results of the discontinued operation, including any profit or loss recognized on the disposal.
- The cash flows of the discontinued operation: The entity must disclose the cash flows of the discontinued operation, including any cash flows related to the disposal.
- The carrying amount of the discontinued operation: The entity must disclose the carrying amount of the discontinued operation, including any assets and liabilities that are part of the discontinued operation.
Measurement of Non-Current Assets Held for Sale
Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The fair value of an asset is the price that would be received in an orderly transaction between market participants. The costs to sell include any costs that are directly attributable to the sale of the asset, such as commissions and legal fees.
Presentation and Disclosure
Non-current assets held for sale and discontinued operations must be presented separately in the financial statements. The entity must disclose the carrying amount of the non-current assets held for sale and the results of the discontinued operation.
Conclusion
IFRS 5 provides guidance on the accounting and disclosure requirements for non-current assets held for sale and discontinued operations. The standard ensures that entities provide transparent and consistent information about their non-current assets held for sale and discontinued operations, which is essential for investors and other stakeholders to make informed decisions. By understanding the criteria for held-for-sale classification, discontinued operations disclosures, and measurement of non-current assets held for sale, entities can ensure that they are complying with the requirements of IFRS 5.
FAQs
- What is the purpose of IFRS 5?: The purpose of IFRS 5 is to provide guidance on the accounting and disclosure requirements for non-current assets held for sale and discontinued operations.
- What are the criteria for classifying a non-current asset as held for sale?: The criteria for classifying a non-current asset as held for sale include availability for immediate sale, active marketing, probability of sale, and expectation of sale within a year.
- What disclosures are required for discontinued operations?: The disclosures required for discontinued operations include a description of the discontinued operation, the results of the discontinued operation, the cash flows of the discontinued operation, and the carrying amount of the discontinued operation.
- How are non-current assets held for sale measured?: Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell.
Glossary
- Held-for-sale classification: A classification of a non-current asset that is available for immediate sale and is expected to be sold within a year.
- Discontinued operation: A component of an entity that has been disposed of or is classified as held for sale.
- Fair value: The price that would be received in an orderly transaction between market participants.
- Costs to sell: The costs that are directly attributable to the sale of an asset, such as commissions and legal fees.
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