ACYFARP: Non-Current Assets Held for Sale and Discontinued Operations

PPE, Investment Property Measuring Using the Cost Model, Investment in Associate, Subsidiary, or Joint Venture, and Intangible Assets

These are the non-current assets within the scope of PFRS 5.

Non-Current Asset (or Disposal Group)

Is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

Non-Current Asset (or Disposal Group)

Has the following conditions:

a. The asset (or disposal group) must be available for immediate sale in its present condition.

b. The sale is highly probable, as evidenced by all of the following:

1. Management is committed to sell the asset.

2. An active program to locate a buyer is initiated.

3. The selling price is reasonable in relation to the asset's (or disposal group's) current fair value.

4. The sale is expected to be completed within one year from the date of classification.

Exception to the One Year Classification

An extension of the period required to complete a sale does not preclude an asset from being classified as held for sale if the following conditions are met:

a. The delay is caused by events or circumstances beyond the entity's control.

b. There is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group).

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 associated with those assets that will be transferred in the transaction.

Non-Current Assets that are to be Abandoned

An entity shall not classify these assets as held for sale. This is because its carrying amount will be recovered principally through continuing use.

Measurement of Non-Current Assets Held for Sale

Whichever is lower between:

a. Carrying amount at date of classification

b. Fair value less costs to sell

Costs to Sell

Are incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.

Costs to Sell

Must be measured at their present value if the sale is expected to occur beyond one year. Any increase in the present value of that arises from the passage of time shall be presented in profit or loss as a financing costs (or interest expense).

Impairment of Asset

Carrying Amount < Fair Value less Cost to Sell

Non-Impairment of Asset

Carrying Amount > Fair Value less Cost to Sell

Journal Entry to Classify a Non-Current Asset as Held for Sale

Journal Entry:

(Debit) Asset held for sale

(Debit) Accumulated depreciation

(Debit) Impairment Loss

(Credit) Non-Current Asset

True

(True or False) Non-current assets classified as held for sale shall not be depreciated (or amortized). This is because assets classified as held for sale are current assets.

True

(True or False) Assets (or disposal group) held for sale that are acquired as part of a business combination are measured at fair value less costs to sell.

Subsequent Changes (Increase or Decrease) In Fair Value less Costs to Sell

Are recognized in profit or loss.

Subsequent Decrease in FVCTS

Considered as an additional impairment loss.

Subsequent Increase in FVCTS

Considered as a gain on reversal of impairment.

Gain on Reversal of Impairment

Is limited only to the extent of cumulative impairment losses previously recognized.

Gain on Reversal of Impairment

The lower amount between the increase in asset's value and impairment previously recognized.

Subsequent Decrease in Fair Value Less Costs to Sell

Journal Entry:

(Debit) Impairment Loss

(Credit) Asset Held for Sale

Subsequent Increase in Fair Value Less Costs to Sell

Journal Entry:

(Debit) Asset Held for Sale

(Credit) Gan on Reversal of Impairment (or Impairment Loss)

True

(True or False) Assets held for sale shall cease to be classified as such if it no longer meets the criteria for classification as held for sale.

Measurement of Non-Current Asset that Ceases to be Classified as Held for Sale

An asset that ceases to be classified as held for sale is measured at the lower of the asset's:

a. Carrying amount before it was classified as held for sale, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset not been classified as held for sale.

b. Recoverable amount at the date of the subsequent decision not to sell (Higher amount between fair value less costs of disposal and value in use).

True

(True or False) Any adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale shall be included in the profit or loss.

Non-Current Assets Held for Sale

Shall be classified as current assets.

Assets and Liabilities of a Disposal Group

The assets shall be reported separately under current assets and the liabilities shall be reported separately under current assets.

Discontinued Operations

Components of an entity that either have been disposed or classified as held for sale and:

a. Represents a separate major line of business or geographical area of operations.

b. Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

c. Is a subsidiary acquired exclusively with a view to resale.

Component of an Entity

May be a subsidiary, a major division of business or geographical segment whose operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

True

(True or False) A component can be clearly distinguished operationally and for financial reporting purposes if its assets and liabilities and its revenue and expenses are directly attributable to the component, meaning, it would be eliminated when the component is disposed of.

Discontinued Operations

Occur if the following happens:

a. A company eliminates (or will eliminate) the results of the operations and cash flows of a component of an entity from its on-going operations.

b. There is no significant continuing involvement in that component after its disposal.

Discontinued Operations

Occur at the earlier of the date of the component is actually disposed of and the date the criteria for classification as held for sale are met.

True

(True or False) If a component of an entity qualified as a discontinued operation during the year, all of its results of operations, before and after the classification, are classified as discontinued operations.

Results of Operations of Discontinued Operations

The financial statements in prior period are restated so that the information presented relate to all operations that have been discontinued as of the reporting period for the latest period.

True

(True or False) The entity shall present the results of operations of discontinued operations, net of tax, on the face of the statement of comprehensive income.

Components of the Income or Loss from Discontinued Operations

Include the following:

a. The amount of revenue, expenses and income or loss attributable to the discontinued operation during the current period and the related income tax.

b. Any impairment loss

c. Any gain or loss from the actual disposal of the assets and settlement of the liabilities of a discontinued operation

d. The termination cost of employees and other costs which are directly incurred as a result of the discontinuance are reported as part of discontinued operations.

Income or Loss from Discontinued Operations, Net of Tax

Net Income or Loss (Before and After Reclassification During the Year) - Impairment Loss +/- Gains and Losses on Disposal - Direct Costs (Pension Cost, Termination Cost, and etc.) x (100% - Tax Rate)

True

(True or False) The income or loss from discontinued operations, net of tax is presented after income or loss from continuing operations.

True

(True or False) NCAHFS or disposal group held for sale that is not a component of an entity is presented within continuing operations.

Balance Sheet Presentation - NCAHFS

Include the following:

a. Assets of the component held for sale separately from all other assets.

b. Assets of the component held for sale are measured at the lower of fair value less to cost to sell and their carrying amount.

c. Liabilities of the component separately from all other liabilities.

d. Nondepreciation - Noncurrent assets of the component held for sale shall not be depreciated.

True

(True or False) Assets of the component classified as held for sale shall be presented as a single amount under current assets and the liabilities of the component shall be presented as single amount under current liabilities. The assets and liabilities of the component cannot be offset against the other.

True

(True or False) A non-current asset or disposal group classified as held for sale shall be measured at a lower of carrying amount and fair value less cost of disposal. The value in use is ignored (value in use shall only be considered when it comes to the cessation of holding an asset for sale).