- 5 Marks
Question
Sofoline Ltd has a plant which cost GH¢40,000 and was purchased on 1 January 2013 with a useful life of 10 years. The plant was being used as part of its business operating capacity. On 30 June 2015, Sofoline Ltd made a decision to classify the plant as held for sale and an agent was appointed for the sale of the plant, which started being advertised at a selling price of GH¢29,000, which was considered to be its fair value. The selling expenses are estimated to be GH¢1,500. The asset has not yet been sold by the year-end of 31 December 2015, and it has a fair value less cost to sell of GH¢24,000 on this date.
Required:
Discuss how this will be accounted for in the financial statements of Sofoline Ltd for the year ended 31 December 2015 in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Answer
Under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, non-current assets classified as held for sale should be measured at the lower of carrying amount and fair value less costs to sell. The following steps outline how the plant should be accounted for:
Conclusion:
-
- The plant should be recognised as an asset held for sale at GH¢24,000 in the statement of financial position as of 31 December 2015.
- A total impairment loss of GH¢6,000 (GH¢2,500 + GH¢3,500) should be recognised in the statement of profit or loss for the year.
- Tags: Fair Value, Financial Statements, Held for Sale, IFRS 5, Impairment, Non-current Assets
- Level: Level 2
- Topic: Preparation of Financial Statements
- Series: NOV 2016
- Uploader: Theophilus