• 7 Marks

CR – May 2018 – L3 – SB – Q3a – Impairment of Assets (IAS 36)

Outline conditions for classifying assets as held for sale and their accounting treatment under IFRS 5.

(a) “IFRS 5 Non-current Asset held for Sale and Discontinued Operations” sets out the principles governing the measurement and presentation of non-current assets that are expected to be realized through sale rather than through continuing use. The standard also deals with reporting the results of operations that qualify as discontinued.

Required:

Discuss the conditions which must be met for a non-current asset to be classified as being “held for sale” and explain the accounting treatment that applies when such a classification is deemed appropriate. (7 Marks)

The conditions which must be met for a non-current asset to be classified as being “held for sale” are:

  1. Management is committed to a plan to sell.
  2. The asset is available for immediate sale.
  3. An active programme to locate a buyer has been initiated.
  4. The sale is highly probable.
  5. The sale should be completed, or expected to be so, within 12 months from the date of classification.
  6. The actions required to complete the planned sale have been made, and it is unlikely that the plan will be significantly changed or withdrawn.
  7. The asset is being actively marketed at a sales price that is reasonable in relation to its fair value.

Accounting treatment:

  • Assets classified as held for sale must be presented separately on the face of the statement of financial position and included in current assets.
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