The entity recognises the loss of CU 1,100 (CU16,000 - CU14,900) immediately before classifying the disposal group as held for sale.
The entity estimates that fair value less costs to sell of the disposal group amounts to CU 13,000. Because an entity measures a disposal group classified as held for sale at the lower of its carrying amount and fair value less costs to sell, the entity recognises an impairment loss of CU1,900 (CU14,900 - CU13,000) when the group is initially classified as held for sale.
The impairment loss is allocated to non-current assets to which the measurement requirements of the IFRS are applicable. Therefore, no impairment loss is allocated to inventory and AFS financial assets. The loss is allocated to the other assets in the order of allocation set out in paragraphs 104 and 122 of IAS 36 (as revised in 2004).
The allocation can be illustrated as follows:
| | Carrying amount as remeasured immediately before classification as held for sale | Allocated impairment loss | Carrying amount after allocation of impairment loss |
| | CU | CU | CU |
| Goodwill | 1,500 | (1,500) | 0 |
| Property, plant and equipment (carried at revalued amounts) | 4,000 | (165) | 3,835 |
| Property, plant and equipment (carried at cost) | 5,700 | (235) | 5,465 |
| Inventory | 2,200 | - | 2,200 |
| AFS financial assets | 1,500 | - | 1,500 |
| Total | 14,900 | (1,900) | 13,000 |
First, the impairment loss reduces any amount of goodwill. Then, the residual loss is allocated to other assets pro rata based on the carrying amounts of those assets.
Presenting discontinued operations in the income statement_____________________________________________________________________________________
Paragraph 33 of the IFRS requires an entity to disclose a single amount on the face of the income statement for discontinued operations with an analysis in the notes or in a section of the income statement separate from continuing operations. Example 11 illustrates how these requirements might be met.
Example 11
XYZ GROUP - INCOME STATEMENT FOR THE YEAR ENDED
31 DECEMBER 20X2 (illustrating the classification of expenses by function)
| (in thousands of currency units) | 20X2 | 20X1 |
| Continuing operations | | |
| Revenue | X | X |
| Cost of sales | (X) | (X) |
| Gross profit | X | X |
| Other income | X | X |
| Distribution costs | (X) | (X) |
| Administrative expenses | (X) | (X) |
| Other expenses | (X) | (X) |
| Finance costs | (X) | (X) |
| Share of profit of associates | X | X |
| Profit before tax | X | X |
| Income tax expense | (X) | (X) |
| Profit for the period from continuing operations | X | X |
| Discontinued operations | __ | __ |
| Profit for the period from discontinued operations(a) | X | X |
| Profit for the period | X | X |
| Attributable to: | | |
| Equity holders of the parent | X | X |
| Minority interest | X | X |
(a) The required analysis would be given in the notes.
Presenting non-current assets or disposal groups classified as held for sale__________________________________________________________________________________________
Paragraph 38 of the IFRS requires an entity to present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are also presented separately from other liabilities in the balance sheet. Those assets and liabilities are not offset and presented as a single amount. Example 12 illustrates these requirements.
Example 12
At the end of 20X5, an entity decides to dispose of part of its assets (and directly associated liabilities). The disposal, which meets the criteria in paragraphs 7 and 8 to be classified as held for sale, takes the form of two disposal groups, as follows:
| | Carrying amount after classification as held for sale |
| Disposal group I: CU | Disposal group II: CU |
| Property, plant and equipment | 4,900 | 1,700 |
| AFS financial asset | 1,400(a) | - |
| Liabilities | (2,400) | (900) |
| Net carrying amount of disposal group | 3,900 | 800 |
| (a) An amount of CU400 relating to these assets has been recognised directly in equity. |
The presentation in the entity’s balance sheet of the disposal groups classified as held for sale can be shown as follows:
| | 20X5 | 20X4 |
| ASSETS | | |
| Non-current assets | | |
| AAA | X | X |
| BBB | X | X |
| CCC | X X | X X |
| Current assets | X | X |
| DDD | X | X |
| EEE | X X | X X |
| Non-current assets classified as held for sale | 8,000 X | - X |
| Total assets | X | X |
| EQUITY AND LIABILITIES | | |
| Equity attributable to equity holders of the parent | | |
| FFF | X | X |
| GGG | X | X |
| Amounts recognised directly in equity relating to | | |
| non-current assets held for sale | 400 X | - X |
| Minority interest | X | X |
| Total equity | X | X |
| Non-current liabilities | | |
| HHH | X | X |
| III | X | X |
| JJJ | X X | X X |
| Current liabilities | | |
| KKK | X | X |
| LLL | X | X |
| MMM | X | X |
| Liabilities directly associated with | | |
| non-current assets classified as held for sale | 3,300 X | - X |
| Total liabilities | X | X |
| Total equity and liabilities | X | X |
The presentation requirements for assets (or disposal groups) classified as held for sale at the end of the reporting period do not apply retrospectively. The comparative balance sheets for any previous periods are therefore not re-presented.
Measuring and presenting subsidiaries acquired with a view to resale and classified as held for sale__________________________________________________________________________________________
A subsidiary acquired with a view to sale is not exempt from consolidation in accordance with IAS 27 Consolidated and Separate Financial Statements. However, if it meets the criteria in paragraph 11, it is presented as a disposal group classified as held for sale. Example 13 illustrates these requirements.
Example 13
Entity A acquires an entity H, which is a holding company with two subsidiaries, S1 and S2. S2 is acquired exclusively with a view to sale and meets the criteria to be classified as held for sale. In accordance with paragraph 32(c), S2 is also a discontinued operation.
The estimated fair value less costs to sell of S2 is CU135. A accounts for S2 as follows:
• initially, A measures the identifiable liabilities of S2 at fair value, say at CU40
• initially, A measures the acquired assets as the fair value less costs to sell of S2 (CU135) plus the fair value of the identifiable liabilities (CU40), ie at CU175
• at the balance sheet date, A remeasures the disposal group at the lower of its cost and fair value less costs to sell, say at CU130. The liabilities are remeasured in accordance with applicable IFRSs, say at CU35. The total assets are measured at CU130 + CU35, ie at CU165
• at the balance sheet date, A presents the assets and liabilities separately from other assets and liabilities in its consolidated financial statements as illustrated in Example 12 Presenting non-current assets or disposal groups classified as held for sale, and
• in the income statement, A presents the total of the post-tax profit or loss of S2 and the post-tax gain or loss recognised on the subsequent remeasurement of S2, which equals the remeasurement of the disposal group from CU135 to CU130.
Further analysis of the assets and liabilities or of the change in value of the disposal group is not required.
Guidance on the effect of IFRS 5 on IAS 36 (as revised in 2004), IAS 38 (as revised in 2004) and IFRS 3_____________________________________________________________________________________________
IAS 36 (as revised in 2004), IAS 38 (as revised in 2004) and IFRS 3 include changes that arise from IFRS 5 as follows.
IAS 36 Impairment of Assets was amended as described below.
All references to ‘net selling price’ were replaced by ‘fair value less costs to sell’.
Paragraph 2 was amended to read as follows:
2 This Standard shall be applied in accounting for the impairment of all assets, other than:
(a) ...
(i) non-current assets (or disposal groups) classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Paragraph 3 was amended to read as follows:
3. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets or, assets arising from employee benefits, or assets classified as held for sale (or included in a disposal group that is classified as held for sale) because existing Standards applicable to these assets contain requirements for recognising and measuring these assets.
Paragraph 6 was amended to read as follows:
...
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.
...
A footnote was added to the last sentence of paragraph 12(f), as follows:
* Once an asset meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale), it is excluded from the scope of IAS 36 and is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IAS 38 Intangible Assets was amended as described below.
Paragraph 3 was amended to read as follows:
3. ...For example, this Standard does not apply to:
(a) ...
(h) non-current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Paragraph 97 was amended to read as follows:
97. ... Amortisation shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 and the date that the asset is derecognised.
Paragraph 117 was amended to read as follows:
117. ... Amortisation of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully depreciated or is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5.
Paragraph 118(e)(ii) was amended to read as follows:
(ii) assets classified as held for sale or included in a disposal group
classified as held for sale in accordance with IFRS 5 and other disposals;
IFRS 3 Business Combinations was amended as described below.
Paragraph 36 was amended to read as follows:
36 The acquirer shall, at the acquisition date, allocate the cost of a business combination by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria in paragraph 37 at their fair values at that date , except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which shall be recognised at fair value less costs to sell. Any difference...
Paragraph 75(b) and (d) was amended to read as follows:
(b) additional goodwill recognised during the period except goodwill included in a disposal group that, on acquisition, meets the criteria to be classified as held for sale in accordance with IFRS 5;
(d) goodwill included in a disposal group classified as held for sale in accordance with IFRS 5 and goodwill derecognised during the period without having previously been included in a disposal group classified as held for sale;
