HO.04_NCA for Sale and Discontinued Operations

Non-Current Assets Held for Sale and Discontinued Operations

Introduction to Non-Current Assets

  • Assets classified as noncurrent under PAS1 can become current if they meet conditions under PFRS5.

  • Major focus areas of PFRS5:

    • Accounting for assets held for sale

    • Handling of disposal groups

    • Reporting and disclosure for discontinued operations.

  • Disposal Group: A collection of assets and liabilities intended for sale as a single transaction.

Learning Objectives

  • Understand criteria for held for sale classification.

  • Explain the initial and subsequent measurement of held for sale assets.

  • Distinguish between:

    1. Non-current asset held for sale

    2. Disposal group

    3. Discontinued operations

  • Learn presentation requirements for discontinued operations.

Classification of Assets Held for Sale

Criteria for Classification

  • A noncurrent asset or disposal group qualifies as held for sale when:

    • It is actively available for immediate sale.

    • Management has established a high probability of sale.

    • The asset is marketed for sale at a reasonable price concerning its fair value.

    • Sale is expected to occur within 12 months of classification, with specific exceptions accounted for.

    • The sales strategy is unlikely to significantly change.

    • Sales transactions include exchanges with commercial substance.

Measurement of Held for Sale Assets

Initial Measurement

  • Held for sale assets have an initial measurement set at the lower of:

    • Carrying amount

    • Fair value less cost to sell

  • Exclude finance costs and income taxes from costs to sell.

  • Assets are not depreciated or amortized while classified as held for sale.

Subsequent Measurement

  • Changes in fair value are monitored and recorded as:

    • Impairment losses

    • Gains on reversal of impairment (limited to past impairments).

  • Example: A building classified as held for sale undergoes measurement reassessment over time based on fair value changes.

Disposal Groups

Subsequent Measurement of Disposal Groups

  • Carrying amounts of assets or liabilities not under PFRS5 must be measured as per applicable standards before re-evaluating fair value less costs to sell for the disposal group.

  • Impairment loss allocations:

    1. First applied to goodwill.

    2. Remaining losses allocated based on carrying amounts of other group assets.

Changes in Disposal Plans

  • If an asset ceases to be held for sale:

    • It is measured at the lower of:

      • Carrying amount adjusted for potential depreciation or revaluation

      • Recoverable amount defined as the maximum of fair value less costs to sell or value in use.

Discontinued Operations

Definition & Criteria

  • A discontinued operation is either:

    • A component disposed of or classified as held for sale.

    • Represents a major business line, geographical area, or a subsidiary aimed at resale.

  • Criteria to identify:

    • Clear operational and financial separation from the rest of the business.

    • Elimination of operational results or cash flows and lack of ongoing involvement after disposal.

Presentation Requirements

  • Results from discontinued operations should appear in profit or loss as a single amount.

  • This amount includes:

    • Profits or losses from discontinued operations

    • Gains or losses from the sale or measurement adjustments.

Reporting for Abandoned Operations

  • Abandoned assets:

    • Classified as discontinued if they are a significant business segment.

    • Reporting reflects the operational ceases and recognizes losses fully prior to physical abandonment.

Example Illustrations

  1. ABC Co. Operation Classification

    • ABC Co. sells a consumer products line following sustained losses in the electronics division, marking that line as discontinued.

  2. Discontinued Operation Illustration

    • If a brand within a product line can't differentiate returns, it remains part of ongoing operations.

Presentation in Financial Statements

  • Assets classified as held for sale show up in the financial position as current items.

  • Each item’s presentation requires separate disclosures, without offsetting.

Cash Flow Presentation

  • Noncurrent assets or disposal groups will have their cash flows separated in the cash flow statement.

  • Additional disclosures apply either directly in the statement or as accompanying notes.

Questions?

For any further clarifications or inquiries related to non-current assets held for sale or discontinued operations, feel free to ask.