## **Learning Outcomes**

After reading this article, you will be able to explain the recognition and classification criteria for non-current assets held for sale under IFRS 5. You will understand how to measure such assets on reclassification, identify the required disclosures, and determine the impact on the statement of financial position and profit or loss, as expected for ACCA FR exam questions.

## **ACCA Financial Reporting (FR) Syllabus**

For ACCA Financial Reporting (FR), you are required to understand how to account for non-current assets held for sale and the related measurement issues under IFRS 5. Specifically, focus your revision on:

- Recognising the classification criteria for non-current assets held for sale
- Measuring assets at the lower of carrying amount and fair value less costs to sell
- Determining when depreciation should cease on reclassified assets
- Presenting and disclosing assets held for sale in the statement of financial position
- Explaining the effects on profit or loss and other financial statements

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following must be true for a non-current asset to be classified as held for sale under IFRS 5?
   a) The sale is expected to complete within three months
   b) The asset is available for immediate sale in its present condition
   c) The company plans to abandon the asset
   d) The sale is not highly probable

2. Once an asset is classified as held for sale, how should it be measured?
   a) At fair value only
   b) At historical cost
   c) At the lower of carrying amount and fair value less costs to sell
   d) At net realisable value

3. True or false? Depreciation continues to be charged on assets after they are classified as held for sale.

4. Describe where non-current assets held for sale should be presented in the statement of financial position.

## **Introduction**

Non-current assets are often held for use in a business, but there are occasions where an entity decides to sell such assets outside the normal operating cycle. IFRS 5 _Non-current Assets Held for Sale and Discontinued Operations_ sets out the strict requirements for classifying assets as held for sale and the subsequent measurement and presentation rules. Understanding these is essential for preparing correct financial statements and for success in the ACCA Financial Reporting (FR) exam.

> **Key Term: non-current asset held for sale**
> A non-current asset whose carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use, subject to strict criteria under IFRS 5.

## **Classification Criteria for Non-current Assets Held for Sale**

An asset (or disposal group) can only be classified as held for sale when **all** of the following conditions are met:

- Management is committed to a plan to sell the asset.
- The asset is immediately available for sale in its current condition.
- An active programme to locate a buyer has been initiated.
- The asset is being actively marketed at a reasonable price.
- The sale is expected to be completed within one year from the classification date.
- It is unlikely that significant changes will be made to the sale plan or that the plan will be withdrawn.

If any of these criteria are not met, the asset must remain classified as non-current.

> **Key Term: fair value less costs to sell**
> The estimated amount obtainable from the sale of an asset in an orderly transaction between market participants, less costs that are directly attributable to the disposal.

## **Measurement of Non-current Assets Held for Sale**

Once an asset is classified as held for sale, IFRS 5 requires it to be measured at the **lower of:**

- The carrying amount (immediately before reclassification), and
- Fair value less costs to sell

If fair value less costs to sell is lower than carrying amount, the difference is recognised as an impairment loss in the statement of profit or loss.

No further depreciation is charged from the date the asset is classified as held for sale.

> **Key Term: costs to sell**
> Incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax.

## **Accounting and Presentation**

- A non-current asset held for sale is presented separately in the statement of financial position under current assets.
- The carrying amount is updated to reflect the lower of previous carrying amount and fair value less costs to sell.
- If the asset is measured at the revaluation model prior to classification, revalue according to the previous policy before applying IFRS 5 measurement.

Depreciation **ceases** from the point the asset is classified as held for sale because its future economic benefits will be recovered through sale rather than ongoing use.

> **Exam Warning**
> A typical exam mistake is to forget to stop depreciating the asset once classified as held for sale, or to miscalculate the impairment loss. The exam will require you to apply the correct measurement basis and treatment of impairment under IFRS 5.

### **Worked Example 1.1**

#### **Reclassification and measurement of a machine as held for sale**

Rollins Ltd owns a machine purchased on 1 January 20X0 for \$50,000 with accumulated depreciation of \$20,000 by 31 December 20X3 (useful life 10 years, straight-line, nil residual value). On 31 December 20X3, the board decides to sell the machine and all IFRS 5 criteria are met on that date. The fair value less costs to sell is \$26,000.

What is the value of the asset when reclassified as held for sale? Should any impairment be recognised, and is depreciation charged thereafter?

> **Answer:**
>
> Carrying amount prior to reclassification: \$50,000 – \$20,000 = \$30,000  
> Compare with fair value less costs to sell: \$26,000  
> Asset should be written down to \$26,000.  
> Impairment loss recognised: \$4,000.  
> No further depreciation is charged from 31 December 20X3 while classified as held for sale.

### **Worked Example 1.2**

#### **Asset not available for immediate sale**

Grafton Plc plans to sell an item of equipment, but it cannot be sold until a major repair is completed, estimated to take eight months. All other IFRS 5 criteria are met.

Can Grafton Plc classify the equipment as held for sale at the year-end?

> **Answer:**
>
> No. The asset is not available for immediate sale in its present condition (pending repair). It cannot be classified as held for sale until the repair is completed and the asset is ready for sale.

## **Practical Matters and Disclosures**

- If the criteria cease to be met, the asset is reclassified back to non-current, and measured at the lower of:
  - its carrying amount before it was classified as held for sale, adjusted for depreciation or amortisation that would have been recognised had it not been classified as held for sale, and
  - its recoverable amount at the date of the subsequent decision not to sell.

- Disclose in the notes:
  - Description of the asset/disposal group
  - Facts and circumstances of the sale
  - An analysis of the result, including the impairment loss, if any

## **Summary**

IFRS 5 sets strict requirements for classifying and measuring non-current assets held for sale. Classification depends on meeting all specified criteria, including readiness for immediate sale and likelihood of completion within one year. Measurement is at the lower of carrying amount and fair value less costs to sell. Depreciation stops once classified as held for sale. Careful application is needed to avoid common errors in ACCA FR exam questions.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the criteria for classification of non-current assets as held for sale under IFRS 5
- Describe measurement at the lower of carrying amount and fair value less costs to sell
- State when depreciation should cease on held for sale assets
- Indicate correct presentation on the statement of financial position
- Identify required disclosures for assets held for sale

## **Key Terms and Concepts**

- non-current asset held for sale
- fair value less costs to sell
- costs to sell

Non-current assets held for sale (IFRS 5) - Classification criteria and measurement