Learning Outcomes
After reading this article, you will be able to explain how non-current assets are classified as held for sale under IFRS 5, accurately present them in the financial statements, and state the specific disclosure requirements. You will be able to apply the recognition and measurement rules, and differentiate presentation between the statement of financial position and statement of profit or loss.
ACCA Financial Reporting (FR) Syllabus
For ACCA Financial Reporting (FR), you are required to understand the correct accounting for non-current assets held for sale. In particular, this article addresses:
- The IFRS 5 classification criteria for non-current assets as held for sale
- How non-current assets held for sale are measured on initial classification and subsequently
- How such assets are presented separately in the statement of financial position
- The effect on the statement of profit or loss, including when discontinued operations are involved
- The key disclosures required by IFRS 5 for these assets
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.
- Which two criteria must be met for a non-current asset to be classified as held for sale under IFRS 5?
- Where must non-current assets held for sale be presented in the statement of financial position? a) As part of non-current assets b) As a separate line among current assets c) In the notes only d) Not shown at all
- True or false? Assets held for sale continue to be depreciated up to the date of sale.
- State one key disclosure required for assets held for sale.
Introduction
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations sets clear rules for classifying, measuring, presenting, and disclosing non-current assets when their primary recovery is now expected through sale, rather than continuing use. Correct treatment is essential for faithful representation and comparability of financial statements, and is a common area in ACCA FR assessments.
Classification of Non-current Assets Held for Sale
A non-current asset (or disposal group) is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use. IFRS 5 requires that all the following conditions be met:
- The asset must be available for immediate sale in its present condition
- The sale must be highly probable, with management committed to a plan to sell and an active programme to locate a buyer
- The asset must be actively marketed at a price that is reasonable in relation to its current fair value
- The sale is expected to be completed within one year of classification
- It is unlikely that significant changes to the sale plan will be made or that the plan will be withdrawn
Key Term: held for sale
A non-current asset or disposal group whose carrying amount will be recovered principally through a sale transaction rather than through continuing use, and which meets the IFRS 5 classification criteria.Key Term: disposal group
A group of assets (and possibly some liabilities) to be disposed of together as a single transaction, by sale or otherwise, under IFRS 5.
Measurement on Classification
When an asset is classified as held for sale:
- It is measured at the lower of its carrying amount and fair value less costs to sell
- If fair value less costs to sell is lower than carrying amount, an impairment loss is recognised immediately in profit or loss
- Any subsequent increases can be recognised, but not beyond the original carrying amount before impairment
Depreciation ceases when the asset is reclassified as held for sale.
Key Term: fair value less costs to sell
The amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal.
Presentation in the Financial Statements
Statement of Financial Position
- Non-current assets (or disposal groups) held for sale must be presented separately from other assets, as a single line within current assets
- Related liabilities must also be presented as a separate line within current liabilities
Key Term: current assets
Assets expected to be realised, sold or consumed within the entity’s normal operating cycle or within 12 months of the reporting date.
Statement of Profit or Loss
- Results from operations relating to held for sale assets are included in profit or loss in the usual way
- If the held for sale asset is part of a discontinued operation, the results are presented separately in the statement of profit or loss, often as a single line
Key Term: discontinued operation
A component of the entity that has either been disposed of or classified as held for sale, and represents a separate major line of business or geographical area.
Disclosure Requirements
IFRS 5 mandates specific disclosures for non-current assets or disposal groups classified as held for sale, including:
- A description of the asset (or disposal group)
- A description of the facts and circumstances of the sale, including the expected manner and timing
- The carrying amount of the asset (or disposal group) at the end of the period
- Any impairment losses recognised (or reversed) on classification and their line item in the statement of profit or loss
- If part of a discontinued operation, disclosure of profit or loss from discontinued operations and the related cash flows
Worked Example 1.1
RHQ Ltd classifies a building as held for sale on 30 September 20X3. The building has a carrying amount of $650,000. Its fair value is estimated at $600,000 and expected selling costs are $10,000. How should this asset be measured on the statement of financial position as at 30 September 20X3?
Answer:
Fair value less costs to sell: $600,000 - $10,000 = $590,000. The building is measured at the lower of $650,000 (carrying amount) and $590,000. It is adjusted down to $590,000 and an impairment loss of $60,000 is recognised in profit or loss. No further depreciation is charged after classification as held for sale.
Worked Example 1.2
On 1 May 20X5, Delta Co classifies plant (carrying amount $120,000) as held for sale. Fair value at this date is $125,000 but expected selling costs are $7,000. What is the effect of classification?
Answer:
Fair value less costs to sell: $125,000 - $7,000 = $118,000. The plant is measured at the lower of its carrying amount ($120,000) and $118,000: $118,000. An impairment loss of $2,000 is recognised immediately. Depreciation stops from 1 May 20X5.
Exam Warning
It is a frequent error to continue depreciating an asset after it is classified as held for sale. Once classified, depreciation must cease—even if the asset is not yet sold at period end.
Revision Tip
When presenting assets held for sale, do not combine them with property, plant and equipment (PPE) or intangibles. Show a single line item within current assets—even if sale is not completed by year end.
Summary
When a non-current asset (or disposal group) meets the IFRS 5 classification criteria, it is measured at the lower of carrying amount and fair value less costs to sell, is reclassified from non-current to a separate line among current assets, is no longer depreciated, and is subject to detailed disclosure. If related to a discontinued operation, further separate presentation and disclosure is required in both the statement of profit or loss and the notes.
Key Point Checklist
This article has covered the following key knowledge points:
- State the IFRS 5 criteria for classifying non-current assets as held for sale
- Explain how assets held for sale are measured on classification and thereafter
- Describe how such assets and related liabilities are presented in the statement of financial position
- Identify how to present these assets in the statement of profit or loss, especially for discontinued operations
- List key disclosures required by IFRS 5 for assets held for sale
Key Terms and Concepts
- held for sale
- disposal group
- fair value less costs to sell
- current assets
- discontinued operation