• IFRS 5 Non-current Assets
Chapter 17 Held for Sale and
Discontinued Operations
Reporting financial
performance
IFRS 5 NCA Held for Sale and Discontinued Operations 1
Objective
• IFRS 5 deals with two separate topics:
– Non-current assets held for sale
– Discontinued operations
• IFRS 5 requires assets which management have decided to sell to be measured and disclosed
separately from other non-current assets.
• It also requires separate disclosure of the results of components of the business which will not
recur in future years.
• As such it aims to enhance the ability of users to make predictions about the future
profitability, cash flows and financial position of an entity.
IFRS 5 NCA Held for Sale and Discontinued Operations 2
Assets held for sale
• Non-current assets are held for sale if their carrying amount will be recovered through the
sale of the non-current asset rather than through the asset's continuing use in the business.
• In order to be classified as held for sale the following criteria must be met:
– The asset must be available for immediate sale in its present condition
– The sale must be highly probable
• Where an asset satisfies these criteria it will be remeasured and disclosed separately in the
statement of financial position.
IFRS 5 NCA Held for Sale and Discontinued Operations 3
Measure the asset in accordance with the applicable IFRS (for example property, plant and
equipment held under the IAS 16 revaluation model is revalued)
Classify as held for sale, at the lower of:
• Carrying amount
• Fair value less costs to sell (FV – CTS)
Do not provide any further depreciation/amortisation on the asset
Disclose separately under current assets on the face of the statement of financial position
Question: Lecture example 2
A company has an asset with a carrying amount of $150,000 at 1 January 20X3 held
under the cost model (cost $200,000) and being depreciated straight line over an
eight-year life to a nil residual value.
At 1 July 20X3, the company classifies the asset as held for sale (and all necessary
criteria are met).
At that date it is estimated that the asset could be sold for $135,000 and that it
would cost $1,000 to secure the sale.
Required
Show the required accounting treatment for the asset.
Answer: Lecture example 2
(1) Measure the asset in accordance with applicable IFRS. Here the asset
simply needs to be depreciated for the six months from 1 January 20X3 to
31 July 20X3.
At 1 July 20X3 the carrying amount of the asset is $137,500.
This is calculated by deducting the depreciation for the six months from 1
January to 31 July from the carrying amount at 1 January 20X3 – ($150,000
– [$200,000 / 8 years × 6/12]).
(2) Value the asset at the lower of its carrying amount ($137,500) and its fair
value less costs to sell.
Fair value less cost to sell is $134,000 ($135,000 – $1,000).
Therefore the asset needs to be decreased in value by $3,500 ($137,500 –
$134,000).
Answer: Lecture example 2 (cont'd)
(3) As the asset is measured at historic cost the loss of $3,500 is
recognised in profit or loss.
No further depreciation should be charged on the asset.
(4) The asset should be classified separately as a 'non-current asset held
for sale' under current assets and shown at a value of $134,000.
IFRS 5 NCA Held for Sale and Discontinued Operations 4
Discontinued operations
Definition
A discontinued operation is a component of an entity that has either been
disposed of or is classified as held for sale and either:
(a) Represents a separate major line of business or geographical area of
operations;
(b) Is part of a single coordinated plan to dispose of a separate major line of
business or geographical area of operations; or
(c) Is a subsidiary acquired exclusively with a view to resale.
Note that a component of an entity is one whose operations and cash flows can
be clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity.
Discontinued example – Vodafone
29. Disposals and discontinued operations
India – Bharti Airtet Limited
On 9 May 2007 and in conjunction with the acquisition of Vodafone
Essar, the Group entered into a share sale and purchase agreement
in which a Bharti group company irrevocably agreed to purchase the
Group's 5.60% direct shareholding in Bharti Airtel Limited. During
the year ended 31 March 2008, the Group received £654 million in
cash consideration for 4.99% of such shareholding and recognised a
net gain on disposal of £250 million, reported in non-operating
income and expense. The Group's remaining 0.61% direct
shareholding was transferred in April 2008 for cash consideration of
£87 million.
http://www.vodafone.com/content/dam/vodafone/investors/annual_reports/annual_report_accounts_2007.pdf
Discontinued example –Vodafone (cont'd)
Japan – Vodafone K.H.
On 17 March 2006, the Group announced an agreement to sell its 97.7%
holding in Vodafone K.K. to SoftBank. The transaction completed on 27 April
2006, with the Group receiving cash of approximately ¥1.42 trillion (£6.9
billion), inducing the repayment of intercompany debt of ¥0.16 trillion (£0.8
billion). In addition, the Group received non-cash consideration with a fair
value of approximately ¥0.23 trillion (£1.1 billion), comprised of preferred
equity and a subordinated loan. Softbank also assumed debt of approximately
¥0.13 trillion (£0.6 billion). Vodafone K.K. represented a separate geographical
area of operation and, on this basis, Vodafone K.K. was treated as a
discontinued operation in Vodafone Group Plc's annual report for the year
ended 31 March 2006.
http://www.vodafone.com/content/dam/vodafone/investors/annual_reports/annual_report_accounts_2007.pdf
Discontinued example – Vodafone (cont'd)
Income statement and segment analysis of discontinued operations
2007 2006
£m £m
Segment revenue 520 7,268
Inter-segment revenue – (2)
Net revenue 520 7,266
Operating expenses (402) (5,667)
Depreciation and amortization(1) – (1,144)
Impairment loss – (4,900)
Operating profit/(loss) 118 (4,445)
Net financing costs 8 (3)
Profit/(loss) before taxation 126 (4,448)
Taxation relating to performance of discontinued operations (15) 7
Loss on disposal(2) (747) –
Taxation relating to the classification of the discontinued operations 145 (147)
Loss for the financial year from discontinued operations(3) (491) (4,588)
Notes:
(1) Including gains and losses on disposal of fixed assets.
(2) Includes £794 million foreign exchange difference transferred to the income statement on disposal.
(3) Amount attributable to equity shareholders for the year to 31 March 2008 was nil (2007: £(494) million; 2006: £(4.598
million).
http://www.vodafone.com/content/dam/vodafone/investors/annual_reports/annual_report_accounts_2007.pdf
Discontinued example – Vodafone (cont'd)
Loss per share from discontinued operations
2007 2006
Pence Pence
per share per share
Basic loss per share (0.90) (7.35)
Diluted loss per share (0.90) (7.35)
http://www.vodafone.com/content/dam/vodafone/investors/annual_reports/annual_report_accounts_2007.pdf
IFRS 5 NCA Held for Sale and Discontinued Operations 5
Discontinued operations (continued)
Disclosure required:
On the face of the statement of profit or loss and other comprehensive
income:
• A single amount comprising the total of:
– The post-tax profit or loss of the discontinued operations
– The post-tax gain or loss recognised on the remeasurement to fair
value less costs to sell or the disposal of the assets held for sale that
relate to the discontinued operation
IFRS 5 NCA Held for Sale and Discontinued Operations 6
Discontinued operations (continued)
Disclosure required:
On the face of the statement of profit or loss and other comprehensive
income or in the notes the discontinued operation's:
• Revenue
• Expenses
• Profit before tax
• Income tax expense
• Post-tax gain or loss on disposal recognised on the remeasurement to fair
value less costs to sell or the disposal of the assets held for sale that
relate to the discontinued operation
IFRS 5 NCA Held for Sale and Discontinued Operations 7
Minimum disclosure on the face:
XYZ GROUP – STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 DECEMBER 20X3
20X3 20X2
$'000 $'000
Revenue X X
Cost of sales (X) (X)
Gross profit X X
Other income X X
Distribution costs (X) (X)
Administrative expenses (X) (X)
Other expenses (X) (X)
Finance costs (X) (X)
Profit before tax X X
Income tax expense (X) (X)
Profit for the year from continuing operations X X
Loss for the year from discontinued operations (X) (X)
PROFIT FOR THE YEAR X X
Other comprehensive income for the year, net of tax X X
TOTAL COMPREHENSIVE INCOME FOR THE YEAR X X
IFRS 5 NCA Held for Sale and Discontinued Operations 8
In the notes:
On 1 October 20X2 the company entered into a plan to sell its toys manufacturing operations. The sale was
completed on 30 June 20X3 and the toys manufacturing business is reported as a discontinued operation for 20X2
and 20X3.
The results of the discontinued operation were as follows.
IFRS 5 NCA Held for Sale and Discontinued Operations 9
In the notes:
On 1 October 20X2 the company entered into a plan to sell its toys manufacturing operations. The sale was
completed on 30 June 20X3 and the toys manufacturing business is reported as a discontinued operation for 20X2
and 20X3.
The results of the discontinued operation were as follows:
20X3 20X2
$'000 $'000
Revenue X X
Cost of sales (X) (X)
Gross profit X X
Other income X X
Distribution costs (X) (X)
Administrative expenses (X) (X)
Other expenses (X) (X)
Finance costs (X) (X)
Loss before tax (X) (X)
Income tax expense X X
Loss after tax (X) (X)
Post-tax gain on remeasurement and disposal of assets and disposal groups X X
LOSS FOR THE YEAR (X) (X)
Other comprehensive income for the year, net of tax X X
TOTAL COMPREHENSIVE INCOME FOR THE YEAR X X
Question: Lecture example 3
A&Z
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 20X1
20X1 20X0
$'000 $'000
Revenue 3,000 2,200
Cost of sales (1,000) (700)
Gross profit 2,000 1,500
Distribution costs (400) (300)
Administrative expenses (900) (800)
Profit before tax 700 400
Income tax expense (210) (120)
PROFIT FOR THE YEAR 490 280
Other comprehensive income for the year, net of tax 40 30
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 530 310
Question: Lecture example 3 (cont'd)
During the year the company ran down a material business operation with all activities ceasing on 26
December 20X1. The results of the operation for 20X0 and 20X1 were as follows.
20X1 20X0
$'000 $'000
Revenue 320 400
Cost of sales (150) (190)
Gross profit 170 210
Distribution costs (120) (130)
Administrative expenses (100) (90)
Loss before tax (50) (10)
Income tax expense 15 3
LOSS FOR THE YEAR (35) (7)
Other comprehensive income for the year, net of tax 5 4
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (30) (3)
Question: Lecture example 3 (cont'd)
The company recognised a loss of $30,000 on initial classification of
the assets of the discontinued operation as held for sale, followed
by a subsequent gain of $120,000 on their disposal in 20X1. These
have been netted against administrative expenses. The income tax
rate applicable to profits on continuing operations and tax savings
on the discontinued operation's losses is 30%.
Question: Lecture example 3 (cont'd)
Required
Prepare the statement of profit or loss and other
comprehensive income for the year ended 31 December 20X1
for A&Z Co complying with the provisions of IFRS 5.
Answer: Lecture example 3
A&Z Co
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR
THE YEAR ENDED 31 DECEMBER 20X1 20X1 20X0
$'000 $'000
Revenue (3,000 – 320) / (2,200 – 400) 2,680 1,800
Cost of sales (1,000 – 150) / (700 – 190) (850) (510)
Gross profit 1,830 1,290
Distribution costs (400 – 120) / (300 – 130) (280) (170)
Administrative expenses (900 – 100) / (800 – 90) (800) (710)
Profit before tax 750 410
Income tax expense (210 + 15) / (120 + 3) (225) (123)
Profit for the year from continuing operations 525 287
Loss for the year from discontinued operations (35) (7)
PROFIT FOR THE YEAR 490 280
Other comprehensive income for the year, net of tax 40 30
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 530 310
Answer: Lecture example 3 (cont'd)
Note. Discontinued operations
During the year the company ran down a material business operation with all activities
ceasing on 26 December 20X1. The results of the operation were as follows.
20X1 20X0
$'000 $'000
Revenue 320 400
Cost of sales (150) (190)
Gross profit 170 210
Distribution costs (120) (130)
Administrative expenses (100 + 90) (190) (90)
Loss before tax (140) (10)
Income tax expense (15 + (90 30%)) 42 3
Loss after tax (98) (7)
Post-tax gain on remeasurement and subsequent
disposal of assets classified as held for sale (90 70%) 63 –
LOSS FOR THE YEAR (35) (7)
Other comprehensive income for the year, net of tax 5 4
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (30) (3)
Past exam questions
Nature of question Exam details
Calculations relating to non-current assets Q4 June 2013
held for sale and application of knowledge Q5 Dec 2010
to a scenario. Q2 June 2010
Define discontinued operations, state why Q4 June 2013
the disclosure is important and calculate Q5 Dec 2010
relevant amounts .
These topics are likely to appear in single- Could also be
company accounts preparation questions. examined by MCQ.
