FACULTY OF BUSINESS SCIENCES
DEPARTMENT OF ACCOUNTING SCIENCES
AUDIT AND RISK MANAGEMENT
APPLIED CORPORATE REPORTING I (ACC 450)
LEVEL 4.1
GROUP 2
NAMES REG NUMBER
Tendai Kusvabadika R227901G
Brighton Runesu R229293V
Sandra Muchemenye R2110818X
Joseph D Zindoga R228359Y
Tadiwa Muchenje R226993M
Webster Vhilengoma R228511N
Kundai B.J Kaseke R209364A
Sandra Muchenje R228216V
Moses G Chimhandire R229203W
Natasha Mbewe R216423F
QUESTION: IFRS 5 – NON-CURRENT ASSET HELD FOR SALE AND
DICONTINUED OPERATIONS
Objectives
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;
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.
Scope
Applies to all recognised non-current assets and disposal groups of an entity that are
held for sale; or
held for distribution to owners
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 of
IFRS 5
If an entity disposes of a group of assets, possibly with directly associated liabilities
(i.e. an entire cash-generating unit), together in a single transaction, if a non-current
asset in the group meets the measurement requirements in IFRS 5, then IFRS 5
applies to the group as a whole.
The entire group is measured at the lower of its carrying amount and fair value less
costs to sell.
Non-current assets to be abandoned cannot be classified as held for sale.
Exclusions:
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).
groups of contracts within the scope of IFRS 17 Insurance Contracts.
Definition of Key Terms
Held for sale is when a carrying amount of an asset is recovered mainly through selling
rather than using it.
Non-Current Asset is an asset that is not expected to be converted to cash or be used up
within one year or the operating cycle, whichever is longer.
Disposal group is group of assets and liabilities to dispose-off together
A discontinued operation is a component of an entity that has been disposed of or is
classified as held for sale and:
represents a separate major line of business or geographical area of operations (i.e., a
segment/s or part of a segment); and
is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations;
Recognition and Measurement Criteria
An asset must meet the following criteria to be classified as held for sale:
The asset 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
The sale of the asset must be highly probable [IFRS 5.7]
The following criteria must be satisfied for a sale to be termed highly probable:
The appropriate level of management must have committed itself to a sales plan;
An active programme must have begun to find a buyer and complete the sale;
The sale must be expected to happen within one year;
The sale must be actively marketed at a selling price that is reasonable in relation to its
current fair value; and
It must be unlikely that significant changes to the plan will be made
A non-current asset would need to be classified as ‘held for sale’ even if its sale is expected
to be concluded after one year from date of classification assuming certain additional criteria
are met. In the event that a sale is not expected to be concluded within a year (see above) the
following additional criteria must be met:
At the date that the entity commits itself to a plan to sell a non-current asset (or disposal
group), it reasonably expects that others (not a buyer) will impose conditions on the
transfer of the asset (or disposal group) that will extend the period required to complete
the sale, and
Timely actions necessary to respond to the conditions have been taken, and a favourable
resolution of the delaying factors is expected
During the initial one-year period the entity took action necessary to respond to the
change in circumstances
The non-current asset (or disposal group) is being actively marketed at a price that is
reasonable, given the change in circumstances.
Practical Example 1
XYZ ltd, decides to sell one of its business segments, a manufacturing plant. The plant’s
carrying amount is $ 1 million. XYZ ltd classifies the plant as held for sale since they are
actively seeking buyers. The company expects to sell it for $ 900 000 after paying $50 000 in
selling costs
Solution
The building would be classified as held for sale and measured at:
$ 900 000 – $ 50 000 = $ 850 000
XYZ would present the plant’s assets separately in the financial statement if the sale meets
the recognition criteria
Example 2
At 1 April 2014, Tilly Ltd owned a property with a carrying amount of $800,000 which had a
remaining estimated life of 16 years. The property had not been revalued
On 1 October 2014, Tilly decided to sell a property and correctly classified as a being held
for sale
A property agent reported that the property’s fair value less cost to sell at 1 October 2024
expected to be $790,500 which had not changed at 31 March 2015
Required
What should be the carrying amount of the property in Tilly Ltd statement of financial
position as at 31 March 2015?
Solution
Property (Depreciation) = $800,000/16 years *6/12
= $25,000 (The asset depreciates before they classified as held for
sale)
Carrying amount = $800,000-$25,000
=$775,000 ( This would also be value at 31 March 2015 as it no
longer depreciated and is lower than its Fair value less cost to sell given in then question of
$790 500 therefore the asset recognised in the financial statement with a carrying amount of $
775 000
De-recognition Criteria
An entity shall not classify as held for sale a non-current asset (or disposal group) that
is to be abandoned.
In the event the disposal group to be abandoned meets the criteria for qualification as
a discontinued operation the entity shall present the results and cash flows of the
disposal group as a discontinued operation on the date on which it ceases to be used.
An entity shall not account for a non-current asset that has been temporarily taken out
of use as if it had been abandoned and will be depreciated as it is still available for
Disclosures Requirements
IFRS 5 requires the following disclosure about assets (or disposal groups) that are held for
sale
Description of the non-current assets (disposal groups)
A description of the facts and circumstances of the sale or leading to expected
disposal and expected manner and timing of that disposal
Impairment losses if any and wherein the statement of comprehensive income are
recognised
Tax Implications
In terms of section 15(2) of the Income Tax Act [chapter 23:06], expenditure and losses to
the extent to which they are for the purposes of trade and in the production of income except
those of a capital are deductible from income when incurred.
Operating profits or losses of the discontinued operation are included in the taxable
income to the date of disposal. This is applicable where a section of the entity is
discontinued, e.g., if a branch or a division is closed. Where the discontinued
operation is itself a tax entity, e.g. in the case of a subsidiary of a group, the tax loss
of the subsidiary cannot be offset against the taxable income of the group.
Tax allowances on non-current assets are calculated up to the date on which the asset
is no longer used in the business activities, or the date of disposal, whichever comes
first.
