Learning Outcomes
After reading this article, you will be able to:
- Explain when non-current assets or disposal groups qualify as 'held for sale' under IFRS 5 and the required accounting.
- Identify and present discontinued operations in financial statements.
- Apply measurement requirements for assets held for sale.
- Understand and produce the necessary disclosures for discontinued operations.
- Interpret the exam relevance and typical pitfalls associated with these areas.
ACCA Strategic Business Reporting (SBR) Syllabus
For ACCA Strategic Business Reporting (SBR), you are required to understand the presentation, measurement, and disclosure of non-current assets held for sale, as well as the correct identification and reporting of discontinued operations in line with IFRS 5. These topics frequently arise in scenario-based questions.
- Define and apply the criteria for classifying non-current assets (or disposal groups) as held for sale.
- Explain and apply the accounting treatment for discontinued operations.
- Measure and present held for sale assets and disposal groups in financial statements.
- Describe and produce required disclosures in line with IFRS 5.
- Evaluate the impact on group accounts when a subsidiary is acquired exclusively for resale or when a business is discontinued.
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.
- What are the key criteria that must be met for a non-current asset to be classified as ‘held for sale’?
- How should an impairment resulting from classification as held for sale be recognised?
- What is the definition of a discontinued operation under IFRS 5?
- In which section of the statement of profit or loss are the results of discontinued operations disclosed?
Introduction
IFRS 5 sets out requirements for classifying, measuring and presenting non-current assets (or disposal groups) held for sale, and the accounting for discontinued operations. Correctly applying these standards ensures financial statements present relevant information about plans to sell major assets or lines of business—helping users predict future profit and cash flows. In exams, questions may test your judgement in classifying, measuring and reporting such activities, emphasising the detailed rules and the reasoning behind them.
Key Term: held for sale
A non-current asset or disposal group is 'held for sale' if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
Classification of Assets Held for Sale
To classify a non-current asset (or disposal group) as held for sale, strict criteria must be met. All of the following must apply at the reporting date:
- The asset must be available for immediate sale in its present condition.
- Management must be committed to a plan to sell.
- An active programme to locate a buyer has begun.
- The asset is being actively marketed at a reasonable price relative to its current fair value.
- The sale is expected to be completed within one year.
- It is unlikely that the plan will be altered or withdrawn.
If these conditions are not all satisfied, classification as held for sale is not permitted. Assets to be abandoned or gradually wound down do not qualify.
Key Term: disposal group
A group of assets and related liabilities that will be disposed of together as a group in a single transaction.
Measurement of Assets Held for Sale
Once classified as held for sale, the asset (or disposal group) is measured at the lower of:
- Its carrying amount; and
- Fair value less costs to sell.
A write-down is recognised immediately where fair value less costs to sell is lower than the carrying amount. Any impairment loss is included in profit or loss. Gains may be recognised for subsequent increases in fair value less costs to sell, but not above the cumulative impairment loss previously recognised.
Any prior revaluations under IAS 16/IAS 38 must be brought up to date before classification; changes in value up to fair value are recognised in other comprehensive income, but write-downs to fair value less costs to sell are taken to profit or loss.
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.
Assets (or disposal groups) held for sale are not depreciated or amortised. The measurement basis is re-evaluated at each reporting date.
Worked Example 1.1
Q: On 31 December, Company X classifies a factory as held for sale. The carrying amount is $300,000. Fair value is $320,000, and expected selling costs are $35,000. How should the asset be measured at year-end?
Answer:
Fair value less costs to sell = $320,000 – $35,000 = $285,000. The asset is measured at the lower of $300,000 (carrying amount) and $285,000 (FV less costs to sell), so it is written down to $285,000. The $15,000 impairment loss is recognised in profit or loss.
Worked Example 1.2
Q: Suppose Company X had revalued the factory to $330,000 under IAS 16 immediately before classification as held for sale (with the previous carrying amount $300,000), and fair value less costs to sell remains $285,000. What is the accounting treatment?
Answer:
First, revalue up to $330,000 with a $30,000 gain in other comprehensive income. Then, write down to $285,000 (FV less costs to sell), resulting in a $45,000 loss. The $30,000 revaluation surplus is removed from OCI, and the remaining $15,000 taken to profit or loss.
Presentation in the Financial Statements
Assets and liabilities held for sale must be presented separately on the face of the statement of financial position. Major classes of assets and liabilities must be disclosed either on the face or in the notes.
- Non-current assets/liabilities held for sale are reported as separate lines under current assets/current liabilities.
- If a disposal group is classified as held for sale after the reporting date but before accounts are authorised, disclose this as a note (it is a non-adjusting event).
Discontinued Operations
A discontinued operation is a component of an entity that:
- Has been disposed of, or is classified as held for sale, and
- Represents either a separate major line of business or geographical area, or is part of a single co-ordinated plan to dispose of such, or is a subsidiary acquired exclusively for resale.
Key Term: discontinued operation
A component of an entity that has been disposed of or classified as held for sale, which represents a separate major line of business or geographic area.
Results of discontinued operations are presented as a single amount on the face of the statement of profit or loss, consisting of:
- The post-tax profit or loss of the discontinued operation, and
- Any post-tax gain or loss on disposal.
An analysis of this total is provided either on the face or in a note.
Comparative figures should also be restated, so prior-year results relating to discontinued operations are shown as discontinued.
Worked Example 1.3
Q: In 20X2, a group sells its Toys division (considered a major line of business). Results are: profit from continuing operations $12m; loss from discontinued operations $2m. How are these shown in the statement of profit or loss?
Answer:
Present as:
- Profit from continuing operations: $12m
- Loss from discontinued operations: $2m
- Profit for the year: $10m
The loss from discontinued operations includes both that segment's trading and the loss on disposal, net of tax.
Subsequent Changes to Sale Plans
If a previously classified held for sale asset or disposal group no longer meets the criteria:
- Cease to classify as held for sale.
- Measure at the lower of:
- Carrying amount before classification, adjusted for any depreciation or amortisation that would have been recognised had the asset not been classified as held for sale, and
- Its recoverable amount at the date of reclassification.
- Recognise any adjustment in profit or loss.
If the sale does not complete within one year, retain classification only if the delay is caused by events beyond the entity's control and the entity remains committed to the sale.
Key Term: recoverable amount
The higher of an asset's fair value less costs to sell and its value in use.
Disclosure Requirements
IFRS 5 requires disclosures to help users assess the financial impact and timing of held for sale and discontinued operations:
- Description of the non-current asset/disposal group.
- Facts and circumstances of the sale or proposed sale.
- Profit or loss, major line items, and cash flows relating to discontinued operations.
Clear disclosure enables users to distinguish one-off results of discontinued activities from the ongoing business.
Exam Warning
Exam Warning
When classifying a segment as discontinued, ensure it is a separate major line of business or area. Minor product lines don't qualify. Never depreciate assets classified as held for sale.
Summary
Assets (or disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell, and are not depreciated. Discontinued operations—major business lines or geographical areas disposed of or held for sale—are shown separately in the profit or loss statement. Both require specific disclosure in the financial statements under IFRS 5.
Key Point Checklist
This article has covered the following key knowledge points:
- Identify and apply the held for sale classification criteria under IFRS 5.
- Measure and account for assets and disposal groups held for sale.
- Recognise discontinuing operations and present results separately.
- Reclassify assets if sale is no longer probable, updating depreciation and impairment.
- Produce appropriate disclosures for assets held for sale and discontinued operations.
Key Terms and Concepts
- held for sale
- disposal group
- fair value less costs to sell
- discontinued operation
- recoverable amount