NON CURRENT ASSETS HELD FOR SALE (NCAHS) AND

DISCONTINUED OPERATIONS IFRS - 5

N R GOVINDARAJAN

CHARTERED ACCOUNTANT

FCA,GRAD.CWA,DISA,CISA

OVERVIEW

• Introduction

• Scope and objectives

• Definitions

• Para 8 conditions

• Para 9 exceptions

• Disposal assets

OVERVIEW

• Partial and piecemeal disposals

• Abandoned assets

• Changes in disposal plan

• Presentation and disclosures

• Summary of measurement principles

• IGAAP VS IFRS

Introduction

• Provides a Frame work for accounting for Non current assets held for sale (NCAHS)

• Replaces IAS 35 – Discontinuing operations• Presentation and disclosure of Non current

assets held for sale and discontinued operations• Realisation of carrying amount through sale and

not through use• Sale should be highly probable and available for

immediate sale• Terms and conditions for sale should be usual

and customary for such assets

AS 24 VS IND AS 24

• COMPARISON

Scope and objectives

• Applies to all recognised non current assets or disposal group of an entity

• Not applicable where other IFRS is applicable

• IAS 12 – Deferred tax assets

• IAS 19 – Assets arising from employee benefits

• IAS 39 – Financial Asssets

Scope and objectives

• IAS 40 – Non current assets accounted under fair value approach

• IAS 41- Non current assets that are measured at fair value less point of sale costs

• IFRS 4 – contractual rights under Insurance contracts

Definitions

• Disposal group

• Discontinued operations

Para 8 conditions

• To classify any asset or group as NCAHFS or DG the following conditions are to be met:

• The asset is available for immediate sale• Management must be committed to a plan to sell

the asset• Active program to locate the buyer and complete

the plan must be initiated• Asset or disposal group must be actively

marketed for a sale at a price reasonable in relation to its fair value

Para 8 conditions

• Action required to complete the plan indicate that it is unlikely that plan will be withdrawn or significantly changed

• The sale is highly probable within 1 year of classification as held for sale ( subject to exceptions as per para 9)

• CASE STUDY 1

Para 9 conditions

• Para 9 allows exception to the condition of one year period in respect of sale of such assets

• In case of circumstances beyond the control of the entity the sale could not be completed and

• The entity is committed to the plan to sell the assets, the assets would still be classified as held for sale

• Sufficient evidence should be available for the commitment

• Three situations are contemplated under para 9 giving the conditions for exception cases to be applied

Para 9 conditions

• The following conditons are to be fulfilled for the application of exception rule:

• Conditions imposed by others

• Restrictions imposed by third parties

• Unexpected circumstances that were previously considered unlikely

• APPENDIX B – IFRS 5

• CASE STUDY 4

Disposal assets

• Where an entity acquires some assets which it intends to sell due to regulatory requirement etc then such assets shall meet the requirements of para 8 for being classfied as NCAHS

• If not, a short period of 3 months is provided to meet the requirements from the date of acquisition

• In case the conditions are met after the balance sheet date then it should not classify the assets as NCAHS

• However, if the conditions are met after the balance sheet date and but before they are authorised, then disclosures are to be made in notes

Partial and piecemeal disposals

• When assets or disposal groups meet the conditions for NCAHS at different points it is considered as not a coordinated plan for disposal

• In such cases each asset should meet the criteria for classification as NCAHS

• When the part of an asset is sold it does not fall within the scope of IFRS 5

Abandoned assets

• Abandonment of assets or business would not constitute sale and hence such assets cannot be classified as held for sale as carrying amount would be recovered only thorough continuing use

• Temporary non use is not abandonment• Eg: An entity shutting down operations due to

low demand and is in full working condition and could commence once the situatation improves, cannot term it as “abandoned operations”

Changes in disposal plan

• NCAHS once not meeting the criteria would be reclassified as held for use

• The measurement principles would change accordingly • It would be lower of • The carrying amount before classification as NCAHS

adjusted for items such as depreciation,amortisation, revaluation had such assets been treated as not held for sale and;

• The recoverable amount on the date of reclassification as per IAS 36 – Impairment of Assets

• The adjustment would be shown in the Income Statement as a part of continuing operations

Presentation and disclosures

• It should enable the users of FS to evaluate the financial effects of discontinued operations and disposal of non current assets

• NCAHS and DG should be presented separately from other assets and liabilities in the statement of financial position

• Statement of Comphrensive income should show a single amount of Profit or loss of discontinued operations and its analysis

Presentation and disclosures

• The following information pertaining to NCAHS should be given in the year in which it is so classified or sold:

• Description of the asset• Facts and circumstances of sale or expected

manner and timing of disposal• Gain/loss or impairment recognised • In case of change of plan to sell, the description

of facts and circumstances leading to the decision and its effect on the operations of the current and prior period