IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Conceptual Framework Linkage

Why assets held for sale need a distinct measurement basis

Once an asset is genuinely being SOLD rather than USED, its economic benefits are best represented by what it will realise on SALE, not by continued depreciation reflecting ongoing use. IFRS 5 operationalises this Framework insight: when the recovery of an asset's carrying amount will occur principally through SALE rather than continuing use, its measurement basis must change to reflect that.

HOW IFRS 5 MAPS TO THE FRAMEWORK

Faithful representation – continuing to depreciate an asset genuinely being marketed for imminent sale would misrepresent how the entity actually expects to recover its value Relevance – separately presenting discontinued operations' results helps users forecast FUTURE performance based only on operations that will continue, directly serving the Framework's predictive value objective The "highly probable" threshold – a deliberately HIGH recognition bar (not merely "probable" or "possible") ensures the measurement change only applies once a sale is GENUINELY imminent, preserving reliability

IFRS 5 directly addressed the KEY WEAKNESS of its predecessor, IAS 35 – the complete absence of any measurement consequence for a decision to discontinue. IFRS 5's held-for-sale classification is a genuine MEASUREMENT event, not merely a disclosure trigger.

Measurement principles applied by IFRS 5

IFRS 5 applies a strict LOWER-OF measurement rule once classification criteria are met – asymmetric by design, since it never allows an UPWARD remeasurement above original carrying amount.

Carrying amount post-classification = LOWER of carrying amount and fair value less costs to sell (FVLCTS)

Qualitative characteristics in action: the strict lower-of rule reflects prudence – an asset being sold should never be carried above the amount genuinely expected to be realised, while depreciation CEASING once held-for-sale reflects that continued use is no longer the recovery path.

Scope & Applicability

What IFRS 5 covers

IFRS 5 applies to ALL recognised non-current assets, and disposal groups, of an entity – specifying accounting for assets HELD FOR SALE, and presentation and disclosure of DISCONTINUED OPERATIONS.

MEASUREMENT SCOPE EXCLUSIONS

The MEASUREMENT provisions of IFRS 5 (the lower-of rule) do NOT apply to: deferred tax assets (IAS 12); assets arising from employee benefits (IAS 19); financial assets within IFRS 9's scope; investment property measured at fair value (IAS 40); biological assets measured at fair value less costs to sell (IAS 41); and contractual rights under insurance contracts.

These items, EVEN IF classified as "held for sale" for PRESENTATION purposes, continue to be measured under their OWN applicable Standard, not IFRS 5's lower-of rule – a narrow but important scope carve-out.

Key definitions you must know

Held for sale

The classification of a non-current asset (or disposal group) whose carrying amount will be recovered PRINCIPALLY through a sale transaction rather than through continuing use.

Disposal group

A 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.

Discontinued operation

A component of an entity that either has been disposed of, or is classified as held for sale, AND represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area, OR is a subsidiary acquired exclusively with a view to resale.

Fair value less costs to sell (FVLCTS)

Fair value (per IFRS 13), less the incremental costs directly attributable to the disposal, excluding finance costs and income tax expense.

Held for Sale – The "Highly Probable" Criteria

All conditions must be met – a genuinely high bar

Management is COMMITTED to a plan to sell the asset (or disposal group) The asset is available for IMMEDIATE sale in its present condition, subject only to terms usual and customary for such sales An ACTIVE PROGRAMME to locate a buyer and complete the plan has been INITIATED The sale is HIGHLY PROBABLE – significantly MORE LIKELY THAN "probable" – and expected to qualify for recognition as a completed sale WITHIN ONE YEAR from the classification date (with limited exceptions for events/circumstances beyond the entity's control) The asset is being ACTIVELY MARKETED for sale at a price that is REASONABLE in relation to its current fair value Actions required to complete the plan indicate it is UNLIKELY significant changes to the plan will be made, or that it will be withdrawn

"Highly probable" is a materially HIGHER threshold than "probable" (the recognition threshold used elsewhere in IFRS, e.g. IAS 37) – a genuinely committed, active, imminent sale is required; a mere INTENTION or a plan still subject to significant uncertainty does NOT qualify for held-for-sale classification.

Measurement of Held-for-Sale Assets (with worked example)

The write-down mechanics, and cessation of depreciation

Impairment loss = Carrying amount − FVLCTS (recognised only if FVLCTS is LOWER)

From the date of classification, DEPRECIATION AND AMORTISATION CEASE entirely on the asset – a direct consequence of no longer recovering value through continued use. A SUBSEQUENT increase in fair value less costs to sell can be recognised, but ONLY UP TO the cumulative impairment loss previously recognised (never above original carrying amount).

Worked example – held-for-sale write-down

Example 1: Classifying a machine as held for sale

A machine has a carrying amount of $850,000 at the date all IFRS 5 criteria are first met. Its fair value is $760,000, with estimated costs to sell of $40,000.

FVLCTS = 760,000 − 40,000 = $720,000
Impairment loss = 850,000 − 720,000 = $130,000, recognised immediately in profit or loss
Revised carrying amount = $720,000 – depreciation on this asset now STOPS entirely, even though it remains physically on the SOFP until sold.

Disposal Groups

Treating a group of assets and liabilities as a single unit

Where the assets classified as held for sale include a GROUP of assets (and associated liabilities), the same held-for-sale criteria and measurement rules apply to the DISPOSAL GROUP AS A WHOLE – the FVLCTS-vs-carrying-amount comparison is made for the GROUP in aggregate, then any resulting write-down is ALLOCATED across the NON-CURRENT assets within the group (similar in spirit to IAS 36's CGU impairment allocation), NOT to the group's current assets, financial assets, or other scope-excluded items.

Assets and liabilities within a disposal group are generally NOT OFFSET – they are presented SEPARATELY as single amounts on the face of the SOFP (total held-for-sale assets, total held-for-sale liabilities), never netted against each other.

Discontinued Operations (with worked example)

The presentation consequence – a single line item

An entity presents a SINGLE AMOUNT on the face of the SOPL comprising the total of: the post-tax profit or loss of discontinued operations; and the post-tax gain/loss recognised on the measurement to FVLCTS (or on disposal) of the assets/disposal group constituting the discontinued operation.

Example 2: Discontinued operation results presentation

A division qualifying as a discontinued operation reports pre-tax operating profit of $600,000 for the period, with related tax expense of $120,000. It also incurs a $200,000 pre-tax loss on remeasurement to FVLCTS, with a related tax benefit of $40,000.

Post-tax operating profit = 600,000 − 120,000 = $480,000
Post-tax loss on remeasurement = (200,000) − (40,000) = ($160,000)
Single line item presented on the face of the SOPL = 480,000 − 160,000 = $320,000 profit from discontinued operations, with a detailed analysis (revenue, expenses, tax, and the components above) required either on the face or in the notes.

Changes to a Plan of Sale

Reclassification back to continuing use

If an entity NO LONGER meets the held-for-sale criteria (e.g. a plan to sell is abandoned), the asset CEASES to be classified as held for sale. It is measured at the LOWER of: (a) its carrying amount BEFORE it was classified as held for sale, adjusted for any depreciation/amortisation/revaluations that WOULD have been recognised had it never been so classified; and (b) its RECOVERABLE AMOUNT at the date of the decision NOT to sell. The adjustment is recognised in PROFIT OR LOSS from CONTINUING operations, in the period the criteria are no longer met.

Presentation on the Face of the Statements

SOFP presentation

An entity presents assets classified as held for sale, and assets of a disposal group classified as held for sale, SEPARATELY from other assets on the face of the SOFP – and, similarly, liabilities of a disposal group classified as held for sale are presented separately from other liabilities. These are NOT reclassified/re-presented in COMPARATIVE SOFP figures for prior periods.

SOPL presentation

Comparative income statement/OCI information for PRIOR periods IS restated so discontinued operation disclosures relate to ALL operations that HAVE been discontinued by the END of the reporting period for the LATEST period presented – a genuine restatement requirement, unlike the SOFP's non-restatement rule above.

Disclosure Requirements

Required disclosures

DISCONTINUED OPERATIONS

Analysis of the single discontinued operations line item into revenue, expenses, pre-tax profit/loss, related tax expense, and the gain/loss on measurement/disposal (and related tax) Net cash flows attributable to operating, investing, and financing activities of discontinued operations

HELD FOR SALE ASSETS

A description of the non-current asset/disposal group, and the facts/circumstances of the sale (or leading to the expected disposal), including expected timing Any impairment loss (and reversal) recognised, and where it's presented in the SOPL Applicable operating segment(s), if the entity reports segment information under IFRS 8

Critical Judgments & Estimates

Where management judgement matters most

SIGNIFICANT JUDGEMENTS

Whether a sale is genuinely "highly probable," and all six classification criteria are met Whether a component qualifies as a "separate major line of business or geographical area" for discontinued operation classification

SIGNIFICANT ESTIMATES

Fair value less costs to sell of the held-for-sale asset/disposal group Allocation of a disposal group's write-down across its non-current assets

A one-year expected disposal timeline is a firm indicator against classification – if a sale is genuinely expected to take LONGER than one year, held-for-sale classification is generally NOT appropriate, unless the delay is caused by events/circumstances GENUINELY beyond the entity's control.

IFRS vs US GAAP – Key Differences

Comparison – IFRS 5 vs US GAAP (ASC 205-20 / ASC 360)

FeatureIFRS (IFRS 5)US GAAP

Discontinued operation thresholdSeparate major line of business or geographical areaRepresents a STRATEGIC SHIFT that has, or will have, a MAJOR EFFECT on operations/financial results – a more restrictive, higher threshold following a 2014 amendment

Held-for-sale measurementLower of carrying amount and FVLCTSSimilar lower-of-carrying-amount-and-fair-value-less-costs-to-sell approach, largely converged

Depreciation cessationCeases on classification as held for saleAlso ceases, converged

Comparative SOFP restatementNOT restated for prior periodsAlso generally not restated for held-for-sale assets, converged

The most significant remaining divergence is the DISCONTINUED OPERATION threshold itself – US GAAP's 2014 narrowing to require a genuine "strategic shift" is somewhat MORE restrictive than IFRS 5's "separate major line of business or geographical area" test.

Statement Mapping – Where Every Held-for-Sale/Discontinued Event Lands

Comprehensive event-to-statement mapping table

Event / transactionStatement(s) affectedNotes

Classification as held for sale – write-down to FVLCTSSOPL SOFPImpairment loss recognised immediately

Depreciation/amortisation on the held-for-sale asset–CEASES entirely from classification date

Subsequent increase in FVLCTSSOPL SOFPRecognised, capped at cumulative impairment previously recognised

Held-for-sale assets/liabilities presentationSOFPSeparate line items; not offset against each other; not restated in comparatives

Discontinued operation post-tax profit/loss + gain/loss on disposalSOPLSingle net line, further analysed in notes; comparatives ARE restated

Reversal – asset no longer held for saleSOPL SOFPRemeasured at the lower of adjusted historical carrying amount and recoverable amount; adjustment through CONTINUING operations

Final disposal – gain/loss on saleSOPLIncluded within the discontinued operations line if applicable

Cash flows attributable to discontinued operationsCash Flow StatementSeparately disclosed by operating/investing/financing category

Description, timing, impairment, segment informationNotesMandatory disclosure

Related Standards – Cross-Reference Map

How IFRS 5 connects across the IFRS body of literature

StandardNature of the connection

IAS 16 / IAS 38 / IAS 40Supply the carrying amount at the point of classification; depreciation/amortisation under these standards ceases once IFRS 5 applies

IAS 36Supplied recoverable amount concepts relevant when an asset is reclassified back to continuing use

IFRS 13Supplies the fair value measurement framework underlying FVLCTS

IFRS 10A subsidiary acquired exclusively with a view to resale can itself qualify as a discontinued operation under IFRS 5's specific criterion

IAS 33Requires separate EPS disclosure for discontinued operations, alongside continuing operations and total EPS

IFRS 8Segment disclosures interact with discontinued operation disclosures, requiring the applicable operating segment to be identified

IAS 12Deferred tax on assets reclassified as held for sale continues to be measured under IAS 12's normal rules, unaffected by IFRS 5's own measurement scope exclusion for deferred tax assets

Quick-Reference Glossary

Component of an entity

Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.

Costs to sell

Incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.

Recoverable amount

The higher of fair value less costs of disposal and value in use (IAS 36) – used as a ceiling if an asset is reclassified out of held-for-sale status.

Highly probable

A significantly higher likelihood threshold than 'probable' – the standard used to determine whether the held-for-sale classification criteria are met.

Abandonment

Ceasing use of an asset without a sale – an asset to be abandoned does NOT meet the held-for-sale criteria, though it may still qualify as a discontinued operation if other criteria are met.

Strategic shift

The US GAAP concept requiring a major operational effect for discontinued operation classification – a somewhat stricter test than IFRS 5's own threshold.

Financial statement key

BS Balance sheet

IS Income statement

SE Statement of changes in equity

OCI Other comprehensive income

SCF Statement of cash flows

History & Development

Apr-2001

In April 2001 the International Accounting Standards Board (Board) adopted IAS 35 Discontinuing Operations, which had originally been issued by the International Accounting Standards Committee in June 1998.

Mar-2004

In March 2004 the Board issued IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to replace IAS 35.

Apr-2009

Improvement to IFRSs