IFRS 5- How Do You Report Non-Current Assets Held for Sale and Discontinued Operations?


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IFRS 5- How Do You Report Non-Current Assets Held for Sale and Discontinued Operations?
IFRS 5- How Do You Report Non-Current Assets Held for Sale and Discontinued Operations?



A company might decide to sell a non-current asset or discontinue its business operations. This decision not only affects cash flows in the future but also changes the profitability and financial situation on the whole. In other words, Non-current assets held for sale and Abandoned Operations in accordance with IFRS 5 which was effective from January 1st, 2005. Let us look at the primary objectives of IFRS 5.

IFRS 5- Objectives

The two primary areas on which IFRS focuses are as follows:

1. Requirements related to reporting of discontinued operations have been established by this regulation.  

2. It focuses on treatment of accounting of disposal groups, which are assets kept for the purpose of eventual liquidation.

IFRS 5- Measurements of Non-Current Assets Held for Sale

Often an entity acquires a non-current asset for disposing of it. Under such circumstances, it will be deemed as held-for-sale at its acquisition date if it is to be sold within one year. If the criteria occur after the date, the asset will not be categorized as held-for-sale. Also, if an entity abandons the assets, they will not be defined as held-for-sale ones. The value of a non-current asset or a group of non-current assets that are held for sale must not be depreciated.

Below are the guidelines related to exceptions for measuring assets held for sale.

● assets derived from the provision of benefits to employees (IAS 19)

● Tax assets that have not yet been paid (IAS 12 Income Taxes)

● IAS 40 Investment Property uses the fair value concept for financial assets that are classified as financial instruments (IFRS 9).

● Contractual rights stemming from insurance contracts according to IFRS 4 Insurance Contracts.

● In accordance with IAS 41, non-current assets are valued at their fair market value rather than their cost of acquisition.

● IAS 40 Investment Property applies the fairvalue approach to non-current assets.

These assets fall under the broad category of held for sale because no change is brought about in their accounting treatment. The other assets should be measured at fair value with fewer costs to sell that are lower than their carrying amount. It is the significant measurement principle of IFRS 5.

IFRS 5- Presentation of Discontinued Operations

After identifying a discontinued operation, one must divide it from other ongoing operations in the statements of accounts. It will enable the reader to understand what is being maintained to generate cash flows and profits in the future.

1. Statement of cash flows: The net cash flows comprise the investing, operating, and financing activities of discontinued operations. One needs to present these disclosures in the financial statements only.

2. A complete income statement is the following: Discontinued operations post-tax profit or loss is included in a single figure. Therefore, the concerned individual must report the analysis in the notes or statement of comprehensive income.

3. Financial position’s statement: In compliance with IFRS 5.38, disposal group non-current assets must be shown separately from other assets. Liabilities of a disposal group that are retained for sale are like wise covered by this rule.

Here, we have extensively covered what IFRS 5 entails and when a non-current asset is to be held for sale. We have also summarized guidelines related to the disclosure of discontinued operations.