Non Current Assets Held for Sale and Discontinued Operations.
IFRS provides guidelines to financial accountants and auditors as how to account for non-current assets which are held for resale. Another aspect of IFRS 5 is disclosure and presentation of discontinued operations.
Steps that should be understood by professionals and students to get it comprehensive understanding is going through meanings of :
Non-current Assets held for sale
Presentation and disclosure requirements of IFRS-5.
A non-current asset held for sale is the asset:
Whose carrying value can only be recovered by sale and not by ongoing use.
Another evidence for non-current assets held for resale is in immediate situation for sale in its present condition which is based on ordinary terms of sales of assets
Probability of sale is high. ( within next 12 months)
An asset which is abandoned will be recovering its carrying value through continuous utilization is not classified as held for sale asset. It means it does not classify as item for immediate sale in its present condition.
A disposal group is group of assets held for disposal or sale and constitute as single transaction involves transferring of associated liabilities at the time of sale.
A discontinued operation is the business operation or component of the entity that is not going to be continued for ongoing basis or which is not meeting the criteria of going concern. IFRS 5 describe the criteria for discontinued operations as: A business operation that has been sold or it has been clearly specified as entity held for sale. Other conditions that apply for classifying the business operation as held for sale are
Being a separate geographical area of business or major business operation
It is part of well established plan for disposal of a separate geographical area of business or major business operation.
It is an acquired business specifically acquired for re-sale purpose.
For better understanding, this component of entity held for sale must be having distinguishable cash flows from other components of business in term of operational as well as financial capacity. It should be a Cash generating unit in other sense.
Presentation and disclosure requirement of above mentioned items in the financial statement as per IFRS 5 is:
Separate disclosure of assets held for sale at lower of carrying value and fair value less cost to sell and depreciation.
Assets categorized as held for sale and associated assets and liabilities in disposal group must be disclosed separately in financial statements.
Separate disclosure of results of discontinued operations in financial statement.