Under IFRS 5, a non-current asset, or a disposal group, is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather through continuing use (IFRS 5.6), which will be the case if the following conditions are met (IFRS 5.7):
- asset/disposal group must be available for immediate sale in its present condition and
- the sale must be highly probable.
Availability for immediate sale
An asset/disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (IFRS 5.7).
See Examples 1-3 accompanying IFRS 5.
Sale highly probable
For the sale to be highly probable, the following conditions must be met (IFRS 5.8):
- the appropriate level of management must be committed to a plan to sell the asset/disposal group,
- an active programme to locate a buyer and complete the plan must have been initiated,
- the asset/disposal group must be actively marketed for sale at a price that is reasonable in relation to its current fair value,
- the sale should be expected to be completed within one year from the date of classification,
- actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Extension of the period required to complete a sale
Paragraph IFRS 5.9 provides an exception to the one-year-to-sale rule that is one of the criterion to be met for an asset/disposal group to be classified as held for sale. This exception is discussed in detail in paragraph IFRS 5.B1. See also Examples 5-7 accompanying IFRS 5.
Assets or disposal groups acquired exclusively with a view to resale
Assets of a class (e.g. properties) that an entity would normally regard as non-current that are acquired exclusively with a view to resale cannot be classified as current (including held for sale) unless the two criteria listed below are met (IFRS 5.3,11):
- the sale is expected to be completed within one year (unless the extension of this period applies) and
- it is highly probable the other criteria for the sale to be considered highly probable (discussed above) will be met within a short period (usually within three months following the acquisition).
This criterion applies also to subsidiaries acquired with a view to resale, see Example 13 accompanying IFRS 5.
Impact of events after the end of the reporting period
When the classification criteria specified in IFRS 5 are met after the end of the reporting period, an asset/disposal group cannot be classified as held for sale at the reporting period. However, an entity should provide disclosures specified in paragraph IFRS 5.41(a)(b)(d) in the notes (IFRS 5.12).
Assets held for distribution to owners
Classification, presentation and measurement requirements of IFRS 5 apply also to non-current assets and disposal groups classified as held for distribution to owners acting in their capacity as owners (IFRS 5.5A). A non-current asset/disposal group is classified as held for distribution to owners when (IFRS 5.12A):
- assets are available for immediate distribution in their present condition and
- the distribution is highly probable.
The distribution is highly probable when:
- actions to complete the distribution have been initiated,
- actions to complete the distribution are expected to be completed within one year from the date of classification,
- it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn.
Non-current assets that are to be abandoned
Non-current assets that are to be abandoned include assets that will be used to the end of their economic life or simply that will be closed rather than sold. Such assets are not assets held for sale, as their carrying amount will not be recovered through a sale. However, a group of assets (and possibly related liabilities) to be abandoned can meet the definition of a discontinued operation (IFRS 5.13).
Disposal group is a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. Disposal group includes also goodwill if the group is a CGU to which goodwill has been allocated (see IAS 36 for allocation of goodwill) or is an operation within such a cash-generating unit (IFRS 5.Appendix A). Therefore, if a non-current asset within the scope of IFRS 5 forms a part of a disposal group, all assets and liabilities within that group are treated as a part of disposal group under IFRS 5, even if some of them are excluded from the measurement provisions of IFRS 5 (IFRS 5.4).
When a subsidiary is classified as held for sale, all of its assets and liabilities are treated as a disposal group, even if the parent expects to retain a non-controlling interest after the sale (IFRS 5.8A).
Measurement of assets held for sale
Non-current assets/disposal groups classified as held for sale are measured at the lower of:
- carrying value and
- fair value less costs to sell (IFRS 5.15).
Carrying value of a non-current asset/disposal group is the value determined under other applicable IFRS immediately before the initial classification as held for sale (IFRS 5.18).
Fair value is determined based on the requirements of IFRS 13.
Costs to sell
Costs to sell are incremental costs directly attributable to the disposal of an asset/disposal group, excluding finance costs and income tax expense (IFRS 15. Appendix A). Incremental costs are generally understood as costs that would not have been incurred if the entity had not entered into a transaction.
As a rule, costs to sell are measured at their present value if the sale is expected to occur beyond one year. An increase in the present value of the costs to sell (and therefore decrease in the carrying value of an asset held for sale) that arises from the passage of time is then presented in P/L as a financing cost (IFRS 5.17).
Fair value remeasurement of a disposal group
When assets or liabilities included in a disposal group are not within the scope of IFRS 5 (i.e. they are not non-current assets), their carrying value is remeasured under other applicable IFRS before the fair value less costs to sell of the disposal group is remeasured (IFRS 5.19). For example, an entity continues to recognise interest expense on liabilities included in the disposal group (IFRS 5.25).
Measurement of assets held for distribution to owners
Non-current assets/disposal group held for distribution to owners are measured at the lower of:
- carrying value and
- fair value less costs to distribute, where costs to distribute are the incremental costs directly attributable to the distribution, excluding finance costs and income tax expense (IFRS 5.15A).
Non-current assets classified as held for sale, or included in the disposal group, should not be depreciated (IFRS 5.25).
Impairment losses and their reversals
Any decreases in fair value less costs to sell of a non-current asset/disposal group are recognised as an impairment loss, unless they are decreases of previously unrecognised increases in fair value. An impairment loss is not recognised if the decrease in value has already been accounted for under other applicable IFRS (IFRS 5.20). Impairment loss is allocated to goodwill first and then on a pro rata basis to non-current assets within the scope of IFRS 5 only (IFRS 5.23).
Impairment losses are reversed when fair value less costs to sell increases, but only to the extent of previously recognised impairment losses (under IFRS 5 or IAS 36) for non-current assets (IFRS 5.21-22). IFRS 5 is silent on whether impairment losses allocated to goodwill within the disposal group can be reversed. In general, IAS 36 prohibits such a reversal, on the other hand, IFRS 5 treats a disposal group as one unit of account for impairment purposes. Therefore, both approaches may be acceptable.
As mentioned above, IFRS 5 treats a disposal group as one unit of account for impairment purposes (IFRS 5.23). Example 10 accompanying IFRS 5 illustrates allocation of an impairment loss on a disposal group. IFRS 5 does not explain what needs to be done when an impairment loss recognised under IFRS 5 would exceed the carrying amount of non-current assets that are within its scope. An entity needs to develop its own accounting policy and e.g. allocate the remaining impairment to other assets (e.g. inventories) or not recognise this part of impairment at all (see also IFRIC January 2016 update).
Investments in associates and joint ventures
IFRS 5 is applied to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale is accounted for using the equity method until disposal of the portion that is classified as held for sale takes place (IAS 28.20-21).
Exceptions to IFRS 5 measurement provisions
The measurement provisions of IFRS 5 do not apply to assets listed in paragraph IFRS 5.5.
Changes to a plan of sale
General requirements relating to changes to a plan of sale
A non-current asset/disposal group that ceases to be classified as held for sale or as held for distribution to owners should be measured at the lower of (IFRS 5.27):
- its carrying amount before it was classified as held for sale or as held for distribution to owners, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset/disposal group not been classified as held for sale or as held for distribution to owners, and
- its recoverable amount measured under IAS 36 at the date of the decision not to sell or distribute.
Carrying amount before an asset was classified as held for sale
Carrying amount before an asset was classified as held for sale is adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset/disposal group not been classified as held for sale or as held for distribution to owners (IFRS 5.27). Relevant adjustments to carrying value are recognised in current year P/L and presented in continuing operations (IFRS 5.28) unless the asset/disposal group is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate.
When the asset/disposal group ceases to be classified as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate, comparative information in financial statements should be adjusted retrospectively. This is not crystal clear, but it can be deducted from paragraph IFRS 5.28 which states that financial statements for the periods since classification as held for sale should be ‘amended accordingly’ and from paragraph IAS 28.21, which explicitly requires retrospective adjustment. Unfortunately, the is no requirement in IFRS 10 or IFRS 11 that would be equivalent to paragraph IAS 28.21, but reading IFRS 5.28 in conjunction with IAS 28.21 makes it rather clear what is meant by amending financial statements ‘accordingly’ in IFRS 5.28.
If the non-current asset is part of a CGU, its recoverable amount is the carrying amount that would have been recognised after the allocation of any impairment loss arising on that cash-generating unit in accordance with IAS 36 (footnote to IFRS 5.27).
Transfers between held for sale and held for distribution
Paragraph IFRS 5.26A provides specific guidance on accounting for a reclassification of an asset/disposal group from being held for sale to being held for distribution, and vice versa.
Presentation of assets held for sale
Assets classified as held for sale and the assets and liabilities of a disposal group are presented separately from other assets in the statement of financial position, without offsetting. Usually, entities present a single line comprising all assets included in the disposal group, and another line comprising liabilities. When doing so, major classes of assets and liabilities should be disclosed in the notes (IFRS 5.38), except for a newly acquired subsidiary that meets the criteria to be classified as held for sale on acquisition (IFRS 5.39).
Additionally, cumulative income or expense recognised in OCI relating to a non-current asset/ disposal group classified as held for sale should also be presented separately within equity (IFRS 5.38). This concerns, for example, foreign currency translation adjustments. Interestingly, IFRS 5 does not require disclosure of non-controlling interest on a subsidiary treated as a disposal group.
The above presentation requirements are applied only prospectively, i.e. without reclassification of comparative information (IFRS 5.40).
Examples 11-12 accompanying IFRS 5 illustrate presentation of assets and disposal groups held for sale.
Disclosure relating to assets held for sale
Additional disclosure requirements for assets held for sale and for disposal groups are set out in paragraphs IFRS 5.41-42. Note that assets and disposal groups within the scope of IFRS 5 are not subject to disclosure requirements included in other IFRS, unless specifically required (see IFRS 5.5B). An example of such a specific requirement relates to interests in other entities which are still under the scope of IFRS 12 even if classified as held for sale and/or treated as discontinued operations (IFRS 12.5A).