By Irene Peter Atolo, FCA, FCIIN
In our earlier discussion, I made mentioned of classification of assets which included Non-Current Assets or Current Assets and tangible or intangible assets. I specifically mentioned that a none-current asset cannot be realized primarily from sales as this is not the intended purpose of acquiring it.
The main purpose of acquiring a Non-Current Asset is to produce economic inflow to the entity.
But there may be a time when a Non-Current Asset held by an organisation may be readily available for disposal or abandoned. In this case the intention of holding such a Non-Current Asset has changed.
Rather than such asset being used for the generation of economic inflow, the value will then be realized from disposal.
When this happens, the provision of IFRS 5 becomes very active in reporting the Non-Current Assets held for sales and discontinued operations.
The aim of IFRS 5 is to prescribe the accounting treatment of Non-Current Asset classified as held for sales and discontinued operations.
By definition, Non-Current Assets held for sales can simply be referred to as assets or group of assets that their carrying amount would be recovered principally through sale transactions rather than through continued use.
Discontinued operation is a component of an entity that has either been disposed off or abandoned; or to be disposed off or to be abandoned.
An entity may not by a mere wish classify an asset as held for sales or disposal group. IFRS 5 gives the criteria for classification of Non-Current Assets as held for sales or disposal group.
These conditions include:
1. The management of the entity must be committed to a plan to sell the Non-Current Assets or disposal group.
2. There must be an active plan to locate a buyer.
3. The asset must be available for immediate sale in its present condition.
4. The sale of the asset is expected to take place within one year from the date of classification.
5. The sale of the asset must be highly probable. This implies that the sale of the asset is more likely to occur than not.
These are all the conditions that must be met before an entity can classify a Non-Current Asset as held for sales.
How are Non-Current Assets, Held for Sales and Discontinued Operations, presented in the Financial Statements?
IFRS 5 requires Non-Current Asset or group of assets that are held for sale to be presented separately on the face of the statement of financial position; and the result of discontinued operations are to be presented separately in the statement of profit or loss and other comprehensive income.
The standard further requires that the revenue, expenses, pre-tax income, tax expenses and profit or loss on the discontinued operations should also be disclosed in the notes to the financial statements.
How is Non-Current Asset Held for Sale measured?
Measurement in accounting simply means assigning a value to an element of financial statements. The provision of IFRS 5 states that whenever a non-current asset has been reclassified as held for sale, such asset should be measured at the lower of its carrying amount and fair value less cost to sale. This valuation is similar to the provision of IAS 2. But reference must be made to IFRS 5 in the measurement of Non-Current Assets held for sale.
It should be noted that whenever an asset is reclassified as held for sale, deprecation will no longer be applicable but the asset must be fully tested for impairment losses. Impairment losses will be recognized whenever the fair value of the asset held for sales is lower than the carrying amount.
Disclosure Requirements
In the period in which a Non-Current Asset or disposal group has been either classified as held for sale or already sold, IFRS 5 requires the following disclosures:
1. All description of the facts and circumstances of the disposal.
2. All gains or losses recognized when the item was classified as held for sale.
3. If applicable, the asset held for sales might be recognized as a segment in accordance with IFRS 8. And where that is done, the entity should disclose this fact.
