Measurement of non-current assets IFRS standards 5

IFRS 5 deals with the accounting for non-current assets held-for-sale, and the presentation and disclosure of discontinued operations. It introduces a classification for non-current assets which is called ‘held-for-sale’.

An entity classifies a non-current asset as held-for-sale if its carrying amount will be recovered mainly through selling the asset rather than through usage. The classification also applies to disposal groups, which are a group of assets and possibly some liabilities which an entity intends to dispose of in a single transaction.

The conditions for a non-current asset or disposal group to be classified as held-for-sale are as follows:

  • the assets must be available for immediate sale in their present condition and its sale must be highly probable
  • the asset must be currently marketed actively at a price that is reasonable in relation to its current fair value
  • the sale should be completed, or expected to be so, within a year from the date of the classification, and
  • the actions required to complete the planned sale will have been made, and it is unlikely that the plan will be significantly changed or withdrawn.

For the sale to be highly probable, management must be committed to selling the asset and must be actively looking for a buyer. It is possible that the sale may not be completed within one year, but the delay effectively must be caused by events beyond the entity’s control and the entity must still be committed to selling the asset.

Measurement of non-current assets IFRS standards 5: Example

An entity has agreed in a directors’ meeting to sell a building, and has tentatively started looking for a buyer for the building. The price of the building has been fixed at $4m and a surveyor has valued the building based on market prices at $3.6m. The entity will continue to use the building until another building has been found with equivalent facilities, and in a suitable location for the office staff, who will not be relocated until the new building has been found.

Additionally, the entity is planning to sell part of its business and has actively marketed the business at a fair price but, before the business can be sold, government approval is required and any sale requires government approval. This means that the sale time is difficult to determine and it may take longer than one year to sell the disposal group.

Measurement of non-current assets IFRS standards 5: Answer

The building will not be classified as held-for-sale as it is not available for immediate sale because, until new premises have been found, the office staff will remain in the existing building. Also, the directors have only tentatively started looking for a buyer which may indicate that the entity is not committed to the sale. Additionally, the price being asked for the building is above the market price, and is not reasonable compared to that price. It is unlikely that the entity will sell the building for that price.

The disposal group, however, would be classified as held-for-sale because the delay is caused by events or circumstances beyond the entity’s control, and there is evidence that the entity is committed to selling the disposal group.

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