MODULE 30 Non-current Assets Held for Sale

LEARNING OBJECTIVES:
1. Describe the criteria for held for sale classification.
2. State the initial and subsequent measurement of held for sale assets.
3. State the presentation requirements of discontinued operation.

OVERVIEW
PFRS 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.

Acquiring new knowledge

Asynchronous - links to more information: www.farhatlectures.com; http://www.ifrsbox.com
A synchronous discussion for this lesson will be scheduled on October 13, 2020 (Tuesday 9:00
– 10:00 AM)

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.

When a company makes the decision to sell an asset or to stop some part of its business, it is
making a decision that affects the future cash flows, profitability and overall financial situation.
The users of the financial statements should be informed about these events. Therefore, PFRS
5 Non-Current Assets Held for Sale and Discontinued Operations was issued to highlight the
results from continued operations and to separate them from the results of the ongoing
activities.

Classification as Held for Sale

A noncurrent asset (or disposal group) is classified as held for sale or held for distribution to
owners it its carrying amount will be recovered principally through sale transaction rather than
through continuing use.

Assets classified as noncurrent in accordance with PAS1 are classified as current only if they
meet the criteria to be classified as held for sale under PFRS 5.

Held-for-sale classification
In general, the following conditions must be met for an asset (or 'disposal group') to be classified
as held for sale:
o management is committed to a plan to sell
o the asset is available for immediate sale
o an active programme to locate a buyer is initiated
o the sale is highly probable, within 12 months of classification as held for sale (subject to
limited exceptions)
 o the asset is being actively marketed for sale at a sales price reasonable in relation to its
fair value
o actions required to complete the plan indicate that it is unlikely that plan will be signifi-
cantly changed or withdrawn

Exception to the one-year requirement

An asset classified as held for sale, that is not sold within 1 year is continued to be classified as
held for sale if the following conditions are met:
a. The delay is caused by events beyond the entity’s control; and
b. There is sufficient evidence that the entity remains committed on selling the asset (or
disposal group).

If none of the above conditions are met, the asset will be reclassified back to its previous
classification (e.g., PPE).

Measurement
Held for sale assets are initially and subsequently measured at the lower of carrying
amount and fair value less cost to sell.

Changes in fair value less cost to sell

Subsequent changes in fair value less cost to sell are recognized in profit or loss, and
impairment losses or gains on reversal of impairment. However, gain on reversal of impairment
is recognized only to the extent of cumulative impairment losses previously recognized.

Depreciation and amortization

Held for sale assets are not depreciated or amortized while they are classifies as held for sale.

Changes to a plan to sell

The asset that ceases to be classified as held for sale is measured at the lower of asset’s
a. Carrying amount before it was classified as held for sale, adjusted for any depreciation,
amortization or revaluation that would have been recognized had the asset not been
classified as held for sale; or
b. Recoverable amount – the higher of fair value less cost of disposal and its value in use,
at the date of subsequent decision not to sell.

Discontinued operation
A discontinued operation is “ a component of an entity that either has been disposed of or is
classified as held for sale, and
a. Represent a major line of business or geographical area of operations;
b. Is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations; or
c. Is a subsidiary acquired exclusively with a view to resale.” (PFRS 5.32)

Illustration:
On March 1, 20x1, A Co. classifies a component of an entity as held for sale and make the
following estimates:

a. Estimated gain on sale of some assets of the component, 100,000.

 b. Estimated impairment losses and losses on sale of the remaining assets ot he
component, 200,000.
c. Estimated operating losses prior to the expected date of sale, 300,000.

The actual result of operations of the component for sale are as follows:
January1 to February 28, 20x1 – 50,000 profit
March 1 to December 31, 20x1 – 1,000,000 loss
Assuming tax rate of 30%, and actual sale occurred in 20x2.

Solutions:
Jan. – Feb. profit from operations 50,000
Mar. – Dec. loss prom operations (1,000,000)
Estimated impairment losses and losses on sale (200,000)
Total (1,150,000)
Multiply by (70% net of tax) x 50%
Loss from discontinued operations (805,000)

Note: both the estimated gain on disposal and estimated operating losses are
disregarded.
 MODULE 30 Post-test
NON-CURRENT ASSETS HELD FOR SALE

PROF. U.C. VALLADOLID

Multiple Choice
Identify the choice that best completes the statement or answers the question.
All answers shall be submitted on or before October 16, 2020 (Friday)

1. How should the assets and liabilities of a disposal group classified as held for sale be shown in the
statement of financial position?
a. The assets and liabilities shall be offset and presented as a single amount.
b. The asset of the disposal group shall be shown separately from other assets in the
statement of financial position, and the liabilities of the disposal group shall be shown
separately from other liabilities in the statement of financial position.
c. The assets and liabilities shall be presented as a single amount and as a deduction from
equity.
d. There should be no separate disclosure of assets and liabilities that form part of a disposal
group.

2. A discontinued operation is a component of an entity that either has been disposed of or is classified as
held for sale and

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

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

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

a. I only
b. I and II only
c. I and III only
d. I, II and III

3. An entity manufactures and sells household products. The entity experienced losses associated with its
small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest
of the entity’s operations. The entity plans to sell the small appliance group with its operations. What is the
earliest point at which the entity shall report the small appliance group as a discontinued operation?
a. When the entity classifies it as held for sale.
b. When the entity receives an offer for the segment.
c. When the entity first sells any of the assets of the segment.
d. When the entity sells the majority of the assets of the segment.
4. In order for a noncurrent asset to be classified as held for sale, the sale must be highly probable. ”Highly
probable” means that
a. The future sale is likely to occur.
b. The future sale is more likely than not to occur.
c. The sale is certain.
d. The probability is higher than more likely than not.

5. If the fair value less cost to sell is lower than the carrying amount of a noncurrent asset classified as held
for sale, the difference is
a. Not accounted for
b. Accounted for as an impairment loss.
c. Charged to depreciation
d. Debited to retained earnings

6. An entity has an asset that was classified as held for sale. However, the criteria for it to remain as held for
sale no longer apply. The entity shall
a. Leave the noncurrent asset in the financial statements at its current carrying amount.
b. Remeasure the noncurrent asset at fair value.
c. Measure the noncurrent asset at the lower of its carrying amount before the asset was
classified as held for sale (adjusted for subsequent depreciation, amortization or
revaluation) and its recoverable amount at the date of the decision not to sell.
d. Recognize the noncurrent asset at its carrying amount prior to its classification as held for
sale adjusted for subsequent depreciation, amortization or revaluation.

7. An entity is planning to dispose of a collection of assets. The entity designates these assets as a disposal
group, and the carrying amount of these assets immediately before classification as held for sale was
5,000,000. Upon being classified as held for sale, the assets were revalued to 4,000,000. The fair value
less cost to sell of the disposal group is 3,500,000 at current year- end. How would the reduction in the
value of the assets on classification as held for sale be treated in the financial statements?
a. The entity recognizes a loss of 1,000,000 immediately before classification as held for sale
and then recognizes an impairment loss of 500,000.
b. The entity recognizes an impairment loss of 1,500,000.
c. The entity recognizes an impairment loss of 1,000,000.
d. The entity recognizes a loss of 1,500,000 immediately before classifying the disposal group
as held for sale.

8. PFRS 5 states that a noncurrent asset that is to be abandoned shall not be classified as held for sale. The
reason for this is because
a. Its carrying amount will be recovered principally through continuing use.
b. It is difficult to value.
c. It is unlikely that the noncurrent asset will be sold within 12 months.
d. It is unlikely that there will be an active market for the noncurrent asset.
 9. Which of the following most likely would be considered a discontinued operation?
a. Shifting production or marketing function from one location to another.
b. A sporting goods manufacturer has a bicycle division that meets the definition of a
component of the entity and decides to outsource the manufacture of its bicycles.
c. The unprofitable brands of a beauty products component of an entity that manufacturers
and sells consumer products are discontinued.
d. An entity that is a franchisor in the quick-service restaurant business also operates
company- owned restaurants that are unprofitable in a certain region and, as a result, the
entity decides to exit both the quick-service business as well as the company- owned
restaurants in that region.

10. The following statements relate to a discontinued operation. Which statement is true?

I. When the discontinued criteria are met after the end of the reporting period, the operation
shall retrospectively be separately presented as a discontinued operation.
II. The net cash flows attributable to the operating, investing, and financing activities of a discontinued
operation shall be separately presented.

a. I only c. Both I and II

b. II only d. Neither I nor II

11. Non-current asset classified as held for sale shall be presented in the statement of financial position as
a. Current asset
b. Other noncurrent asset
c. Noncurrent investment
d. Property, plant and equipment

12. An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the criteria to be
classified as held for sale. At the end of the reporting period, the subsidiary has not yet been sold, and six
months have passed since its acquisition. How will the subsidiary be valued in the statement of financial
position at the date of the first financial statements after acquisition?
a. At fair value
b. At the lower of its cost and fair value less cost to sell.
c. At carrying amount
d. In accordance with applicable PFRS

13. What is the treatment of any gain on a subsequent increase in the fair value less cost to sell of a noncurrent
asset classified as held for sale?
a. The gain shall be recognized in full.
b. The gain shall not be recognized.
c. The gain shall be recognized but not in excess of the cumulative impairment loss previously
 recognized.
d. The gain shall be recognized but only in retained earnings.

14. Any entity shall classify a noncurrent asset or disposal group as “held for sale” when
a. The carrying amount of the asset or disposal group will be recovered through a sale
transaction.
b. The carrying amount of the asset or disposal group will be recovered through continuing
use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

15. What is the presentation of the results from discounted operation in the income statement?
a. The entity shall disclose a single amount on the face of the income statement with analysis
in the notes or a section of the income statement separate from continuing operations.
b. The amounts from discontinued operations shall be broken down over each category of
revenue and expense.
c. Discontinued operations shall be shown as a movement on retained earnings.
d. Discontinued operations shall be shown as a line item after gross profit with the taxation
being shown as part of income tax expense.

16. A noncurrent asset that ceases to be classified as held for sale shall be measured at
a. Carrying amount.
b. Recoverable amount at the date of the subsequent decision not to sell.
c. Lower between the carrying amount before the asset was classified as held for sale
adjusted for depreciation that would have been recognized if the asset had not been
classified as held for sale and the recoverable amount at the date of the subsequent
decision not to sell.
d. Higher between the carrying amount before the asset was classified as held for sale
adjusted for depreciation that would have been recognized if the asset had not been
classified as held for sale and the recoverable amount at the date of the subsequent
decision not to sell.

17. It comprises operations and cash flows that can be clearly distinguished, operationally and for financial
reporting purposes from the rest of the entity.
a. Component of an entity
b. Disposal group
c. Business segment
d. Corporate asset

18. Which of the following criteria does not have to be met in order for an operation to be classified as
discontinued?
a. The operation shall represent a separate major line of business or geographical area.
 b. The operation is part of a single plan to dispose of a separate major line of business or
geographical area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months of the year- end.

19. Noncurrent asset or disposal group is classified as “held for sale” when the asset is available for immediate
sale and the sale is highly probable. For the sale to be highly probable, (choose the incorrect one)
a. Management must be committed to a plan to sell the asset.
b. An active program to locate a buyer and complete the plan must have been initiated.
c. The asset must be actively marketed for sale at a reasonable price in relation to its current
fair market value.
d. The sale is expected to qualify for recognition as a completed sale within two years from the
date of classification of the asset as “held for sale”.

20. Which of the following is a requirement for a component of an entity to be classified as a discontinued
operation?
a. Its activities must cease permanently prior to the financial statements being authorized for
issue by management.
b. It must compromise a separately reportable segment in accordance with PFRS 8 Operating
segments.
c. Its assets must have been classified as held for sale in the previous financial statements.
d. It must have been a cash generating unit or a group of cash generating units while being
held for use.