Non-Current Asset Held For Sale - Notes
Non-Current Asset Held For Sale - Notes
Technical Knowledge
- To understand the recognition of noncurrent asset held for sale
- To know the conditions for the classification of a noncurrent asset held for sale
- To know the measurement and presentation of noncurrent asset held for sale
- To know the recognition of a noncurrent asset that ceases to be classified as held for sale
A non-current asset is an asset that does not meet the definition of a current asset.
The non-current asset may be an individual asset, like land and building, or a disposal group.
Disposal Group
- Group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly
associated with those assets that will be transferred in the transaction
- The group includes goodwill acquired in a business combination if the group is a cash generating unit to which goodwill
has been allocated
- A non-current asset or disposal group is classified as held for sale if the carrying amount will be recovered principally
through a sale transaction rather than through continuing use
Fair Value
- The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date
Cost of Disposal
- The incremental cost directly attributable to the disposal of an asset or disposal group but excluding finance cost and
income tax expense
Illustrative Problem 1
On January 1, 2017, an entity acquired an equipment at a cost of 2,500,000 to be used in the ordinary course of business.
The equipment has an estimated useful life of 10 years and a residual value of 250,000.
On January 1, 2020, the equipment was classified as held for sale. On such date, the fair value less cost of disposal was
estimated at 950,000. On June 30, 2020, the equipment was sold for 750,000.
Journal Entries
January 1, 2020
Equipment held for sale 1,825,000
Accumulated depreciation 675,000 (2,500,000 – 250,000) / 10 x 3
Equipment 2,500,000
June 30, 2020
Impairment loss 875,000 Cash 750,000
Equipment held for sale 875,000 Loss on sale of equipment 200,000
(1,825,000 – 950,000 = 875,000) Equipment held for sale 950,000
Illustrative Problem 2
On January 1, 2019, an entity acquired an equipment at a cost of 2,000,000 to be used in the ordinary course of business.
The equipment has an estimated useful life of 5 years and has no residual value.
On December 31, 2020, the equipment was classified as held for sale. On such date, the fair value less cost of disposal
was 1,500,000. On July 1, 2021, the equipment was sold for 1,450,000.
Journal Entries
December 31, 2020
Equipment held for sale 1,200,000
Accumulated depreciation 800,000 (2,000,000 / 5 x 2)
Equipment 2,000,000
July 1, 2021
Cash 1,450,000
Equipment held for sale 1,200,000
Gain on sale of equipment 250,000
Illustrative Problem 3
On January 1, 2019, an entity acquired land at a cost of 1,250,000. The land is measured at fair value in accordance with
the revaluation model. On December 31, 2019, the fair value of the land was 1,500,000.
On June 30, 2020, the land was classified as held for sale. On such date, the fair value was estimated at 1,750,000 and the
cost of disposal at 50,000. On December 31, 2020, the land was sold for 1,675,000.
Journal Entries
January 1, 2019 December 31, 2019
Land 1,250,000 Land 250,000
Cash 1,250,000 Revaluation Surplus 250,000
Temporarily Abandoned
- An entity shall not account for a non-current asset that has been temporarily taken out of use as if it had been abandoned.
- An entity ceases to use a manufacturing plant because demand for its product has declined.
- However, the plant is maintained in workable condition and it is expected that it will be brought back into use if demand
picks up. In this case, the plant is not regarded as abandoned.
Change in Classification
- Circumstances could arise leading to the non-current asset no longer being classified as held for sale.
- For example, there is a decision not to sell the non-current asset or the criteria for being classified as held for sale may
no longer be met.
- In such as case, the entity shall measure the non-current asset that ceases to be classified as held for sale at the lower of:
a. Carrying amount before the asset was classified as held for sale adjusted for any depreciation or amortization that
would have been recognized if the asset had not been classified as held for sale
b. Recoverable amount at the date of the subsequent decision not to sell
Any adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale should be
included in profit or loss.
Illustrative Problem 4
An entity purchased equipment for 2,500,000 on January 1, 2019 with a useful of 10 years and no residual value. On
December 31, 2020, the entity classified the asset as held for sale. The fair value of the equipment on December 31, 2020
is 1,650,000 and the cost of disposal is 50,000. On December 31, 2021, the fair value of the equipment is 1,900,000 and
the cost of disposal is 100,000. On same date, the entity believed that the criteria for classification as held for sale can no
longer be met. Accordingly, the entity decided not to sell the asset but to continue to use it.
Journal Entries
January 1, 2019 December 31, 2019
Equipment 2,500,000 Depreciation Expense 250,000
Cash 2,500,000 Accumulated Depreciation 250,000