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 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : IFRS 5 Non-current Assets Held for Sale and Discontinued Operations outlines how to account for non-current assets held for sale (or for distribution to owners). In general terms, assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position. Specific disclosures are also required for discontinued operations and disposals of non-current assets.

 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : the Board agreed to add a short-term convergence project to its active agenda. The objective of the project is to reduce differences between IFRSs and US GAAP that are capable of resolution in a relatively short time and can be addressed outside major projects. The project is a joint project with the
US Financial Accounting Standards Board

As part of the project, the two boards agreed to review each other’s deliberations on each of the selected possible convergence topics, and choose the highest quality solution as the basis for convergence. For topics recently considered by either board, there is an expectation that whichever board has more recently deliberated that topic will have the higher quality solution.

As part of the review of topics recently considered by the FASB, the Board discussed the requirements of SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, as they relate to assets held for sale and discontinued operations. The Board did not consider the requirements of SFAS 144 relating to the
impairment of assets held for use. Impairment of such assets is an issue that is being addressed in the IASB research project on measurement being led by the Canadian Accounting Standards Board.

 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

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 IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : Until the issue of IFRS 5, the requirements of SFAS 144 on assets held for sale and discontinued operations differed from IFRSs in the following ways:
(a) if specified criteria are met, SFAS 144 requires non-current assets that are to be disposed of to be classified as held for sale. Such assets are remeasured at the lower of carrying amount and fair value less costs to sell and are not depreciated or amortised. IFRSs did not require non-current assets that are to be disposed of to be classified separately or measured differently from other non-current assets.
(b) the definition of discontinued operations in SFAS 144 was different from the definition of discontinuing operations in IAS 35 Discontinuing Operations and the presentation of such operations required by the two standards was also different.

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : Until the issue of IFRS 5, the requirements of SFAS 144 on assets held for sale and discontinued operations differed from IFRSs in the following ways:
(a) if specified criteria are met, SFAS 144 requires non-current assets that are to be disposed of to be classified as held for sale. Such assets are remeasured at the lower of carrying amount and fair value less costs to sell and are not depreciated or amortised. IFRSs did not require non-current assets that are to be disposed of to be classified separately or  measured differently from other non-current assets.
(b) the definition of discontinued operations in SFAS 144 was different from the definition of discontinuing operations in IAS 35 Discontinuing Operations and the presentation of such operations required by the two standards was also different.

The Board proposed that the IFRS should apply to all non-current assets except:
(a) goodwill,
(b) financial instruments within the scope of IAS 39 Financial Instruments: Recognition and Measurement,1
(c) financial assets under leases, and
(d) deferred tax assets and assets arising from employee benefits.

In reconsidering the scope, the Board noted that the use of the term ‘non-current’ caused the following problems:
(a) assets that are acquired with the intention of resale were clearly intended to be within the scope of ED 4, but would also be within the definition of current assets and so might be thought to be excluded. The same was true for assets that had been classified as non-current but were now expected to be realised within twelve months.
(b) it was not clear how the scope would apply to assets presented in accordance with a liquidity presentation.

The Board noted that it had not intended that assets classified as non-current in accordance with IAS 1 Presentation of Financial Statements would be reclassified as current assets simply because of management’s intention to sell or because they reached their final twelve months of expected use by the entity. The Board
decided to clarify in IFRS 5 that assets classified as non-current are not reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with the IFRS. Further, assets of a class that an entity would normally regard as non-current and are acquired exclusively with a view to resale are not classified as current unless they meet the criteria to be classified as held for sale in accordance with the IFRS.

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : In relation to assets presented in accordance with a liquidity presentation, the Board decided that non-current should be taken to mean assets that include amounts expected to be recovered more than twelve months after the balance sheet date.

IFRS are applicable to all non-current assets and concluded that any exclusions should relate only to the measurement requirements. In relation to the measurement requirements, the Board decided that non-current assets should  be excluded only if (i) they are already carried at fair value with changes in fair value recognised in profit or loss or (ii) there would be difficulties in determining their fair value less costs to sell. The Board therefore concluded that only the following non-current assets should be excluded from the measurement requirements of the IFRS:
Assets already carried at fair value with changes in fair value recognised in profit or loss:
(a) financial assets within the scope of IAS 39.2
(b) non-current assets that have been accounted for using the fair value model in IAS 40 Investment Property.
(c) non-current assets that have been measured at fair value less estimated point-of-sale costs in accordance with IAS 41 Agriculture.3

Assets for which there might be difficulties in determining their fair value:
(a) deferred tax assets.
(b) assets arising from employee benefits.
(c) assets arising from insurance contracts.

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : The Board noted that some IFRSs other than IFRS 5 require specific disclosures for non-current assets (or disposal groups) classified as held for sale or discontinued operations. For instance, paragraph 68 of IAS 33 Earnings per Share requires an entity to disclose the amount per share for discontinued operations. The Board also noted that the requirements of IAS 1 on fair presentation and materiality also apply to such assets (or disposal groups).

The Board considered whether a separate classification for non-current assets held for sale would create unnecessary complexity in IFRSs and introduce an element of management intent into the accounting. Some commentators suggested that the categorisation ‘assets held for sale’ is unnecessary, and that if the focus were changed to ‘assets retired from active use’ much of the complexity could be eliminated, because the latter classification would be based on actuality rather than what they perceive as management intent. They assert that it is the potential abuse of the classification that necessitates many of the detailed requirements in SFAS 144. Others suggested that, if existing IFRSs were amended to specify that assets retired from active use are measured at fair value less costs to sell and to require additional disclosure, some convergence with
SFAS 144 could be achieved without creating a new IFRS.

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations : Furthermore, although the held for sale classification begins from an intention to sell the asset, the other criteria for this classification are tightly drawn and are significantly more objective than simply specifying an intention or commitment to sell. Some might argue that the criteria are too specific. However, the Board believes that the criteria should be specific to achieve comparability of classification between entities. The Board does not believe that a classification ‘retired from active use’ would necessarily require fewer criteria to support it. For example, it would be necessary to establish a distinction between assets retired from active use and those that are held as back-up spares or are temporarily idle.

IFRS 5 Non Current Assets Held For Sale And Discontinued Operations

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Important Note – Preparing for IFRS?
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