The objective of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations – is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. In particular, the standard requires that non-current assets (and, in a ‘disposal group’, related liabilities and current assets, discussed at 2.1.1 below) meeting its criteria to be classified as held for sale be:
The classification and presentation requirements apply to all recognised non-current assets and disposal groups, while there are certain exceptions to the measurement provisions of the standard. [IFRS 5.2, 5]. These issues are discussed further at 2.2 below.
The classification, presentation and measurement requirements of IFRS 5 applicable to assets (or disposal groups) classified as held for sale also apply to those classified as held for distribution to owners acting in their capacity as owners. [IFRS 5.5A]. This is discussed at 2.1.2 below.
IFRS 5 frequently refers to current assets and non-current assets. It provides a definition of each term as follows:
‘An entity shall classify an asset as current when:
A non-current asset is ‘an asset that does not meet the definition of a current asset’. [IFRS 5 Appendix A].
These definitions are the same as those in IAS 1 – Presentation of Financial Statements (discussed in Chapter 3 at 3.1.1).
As its title suggests, IFRS 5 addresses the accounting treatment of non-current assets held for sale, that is assets whose carrying amount will be recovered principally through sale rather than continuing use in the business. [IFRS 5.6]. However, the standard also applies to certain liabilities and current assets where they form part of a ‘disposal group’.
The standard observes that sometimes an entity will dispose of a group of assets, possibly with some directly associated liabilities, together in a single transaction. [IFRS 5.4]. A common example would be the disposal of a subsidiary. For these circumstances, IFRS 5 introduces the concept of a disposal group, which it defines as 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. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated in accordance with the requirements of IAS 36 – Impairment of Assets (discussed in Chapter 20) or if it is an operation within such a cash-generating unit. [IFRS 5 Appendix A].
The use of the phrase ‘together in a single transaction’ indicates that the only liabilities that can be included in the group are those assumed by the purchaser. Accordingly, any borrowings of the entity which are to be repaid out of the sales proceeds would be excluded from the disposal group.
The standard goes on to explain that a disposal group:
Discontinued operations are discussed at 3 below. As noted there, it seems highly unlikely that the definition of a discontinued operation would ever be met by a single non-current asset. Accordingly, a discontinued operation will also be a disposal group.
IFRS 5 requires a non-current asset (or disposal group) to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. [IFRS 5.6]. For these purposes, sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance in accordance with IAS 16 – Property, Plant and Equipment (discussed in Chapter 18 at 4.4). [IFRS 5.10]. For assets classified according to a liquidity presentation (see Chapter 3 at 3.1.1), non-current assets are taken to be assets that include amounts expected to be recovered more than twelve months after the reporting date. [IFRS 5.2].
Determining whether (and when) an asset stops being recovered principally through use and becomes recoverable principally through sale is the critical distinction, and much of the standard is devoted to explaining how to make the determination.
For an asset (or disposal group) to be classified as held for sale:
These criteria are discussed further below. If an asset (or disposal group) has been classified as held for sale, but these criteria cease to be met, an entity should cease to classify the asset (or disposal group) as held for sale. [IFRS 5.26]. Changes in disposal plans are discussed at 2.2.5 below.
Slightly different criteria apply when an entity acquires a non-current asset (or disposal group) exclusively with a view to its subsequent disposal. In that case it should only classify the non-current asset (or disposal group) as held for sale at the acquisition date if:
The standard also makes it clear that the criteria in (a) and (b) above must be met at the reporting date for a non-current asset (or disposal group) to be classified as held for sale in those financial statements. However, if those criteria are met after the reporting date but before the authorisation of the financial statements for issue, the standard requires certain additional disclosures (discussed at 5 below). [IFRS 5.12].
The classification, presentation and measurement requirements of IFRS 5 applicable to assets (or disposal groups) classified as held for sale also apply to those classified as held for distribution to owners acting in their capacity as owners. [IFRS 5.5A]. This applies when an entity is committed to distribute the asset (or disposal group) to its owners. For this to be the case, the assets must be available for immediate distribution in their present condition and the distribution must be highly probable.
To qualify for classification as held for sale, a non-current asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups). This is taken to mean that an entity currently has the intention and ability to transfer the asset (or disposal group) to a buyer in its present condition. The standard illustrates this concept with the following examples. [IFRS 5.IG1‑3].
Many observers may consider the meaning of ‘highly probable’ to be reasonably self-evident, albeit highly judgemental. However, IFRS 5 provides extensive discussion of the topic. As a first step, the term is defined by the standard as meaning ‘significantly more likely than probable’. This is supplemented by a second definition – probable is defined as ‘more likely than not’. [IFRS 5 Appendix A]. Substituting the latter into the former leads to a definition of highly probable as meaning ‘significantly more likely than more likely than not’.
The standard goes on to elaborate as follows:
For the sale to be highly probable:
As noted above, the classification, presentation and measurement requirements of IFRS 5 applicable to assets (or disposal groups) classified as held for sale also apply to those classified as held for distribution to owners acting in their capacity as owners (see 2.1.2 above). [IFRS 5.5A].
For the distribution to be highly probable, actions to complete the distribution must have been initiated and should be expected to be completed within one year from the date of classification. Actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will not be completed. Whilst judgement will be needed in individual circumstances, relevant actions to consider could include: the steps taken by management to prepare for the distribution, board decisions illustrating the commitment to the planned distribution, and steps taken to organise the meeting of shareholders, if their approval is required. The probability of shareholders’ approval, if this is required, should be considered as part of the assessment of whether the distribution is highly probable. [IFRS 5.12A].
The basic rule above that for qualification as held for sale the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification (the ‘one year rule’) is applied quite strictly by the standard. In particular, IFRS states that this ‘criterion would not be met if:
In (a), the entity does not yet know whether the asset will be sold at all and hence may not presume that it will be sold within a year.
In (b), whilst in legal form the asset has been sold it will not be recognised as sold in the financial statements. Sale and leaseback transactions are discussed in Chapter 23 at 8.
As indicated above, the standard contains an exception to the one year rule. It states that events or circumstances may extend the period to complete the sale beyond one year. Such an extension would not preclude an asset (or disposal group) from being classified as held for sale if the delay is caused by events or circumstances beyond the entity's control and there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group). This will be the case in the following situations: [IFRS 5.9]
Firm purchase commitment is a defined term in IFRS 5, meaning an agreement with an unrelated party, binding on both parties and usually legally enforceable, that:
The word ‘binding’ in this definition seems to envisage an agreement still being subject to contingencies. The standard provides an example where a ‘firm purchase commitment’ exists but is subject to regulatory approval (see scenario (a) in Example 4.2 below). In our view, to be ‘binding’ in this sense a contingent agreement should be only subject to contingencies outside the control of both parties.
The standard illustrates each of these exceptions to the one year rule with the following examples. [IFRS 5.IG5‑7].
IFRS 5 stipulates that a non-current asset (or disposal group) that is to be abandoned should not be classified as held for sale. This includes non-current assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold. The standard explains that this is because its carrying amount will be recovered principally through continuing use. [IFRS 5.13].
If the disposal group to be abandoned meets the criteria for being a discontinued operation the standard requires it to be treated as such in the period in which the abandonment occurs. [IFRS 5.13]. This is discussed at 3.1 below. However, a non-current asset that has been temporarily taken out of use should not be accounted for as if it had been abandoned. [IFRS 5.14]. An example given by the standard is of a manufacturing plant that ceases to be used because demand for its product has declined but which is maintained in workable condition and is expected to be brought back into use if demand picks up. The plant is not regarded as abandoned. [IFRS 5.IG8]. However, in these circumstances an impairment loss may need to be recognised in accordance with IAS 36 (discussed in Chapter 20).
The standard provides that when an entity is committed to a sale plan involving loss of control of a subsidiary it should classify all the assets and liabilities of that subsidiary as held for sale when the relevant criteria are met (see 2.1 above). This is regardless of whether it will retain a non-controlling interest in the former subsidiary after the sale, such as for instance an interest in an associate or a joint venture. [IFRS 5.8A].
If the retained interest represents a joint operation, it could be argued that, since the entity retains a direct interest in the underlying assets and obligations for the liabilities after the disposal, the transaction is in substance a sale of parts of the underlying assets and liabilities. On that basis, only the disposed of parts of the assets and liabilities would be classified as held for sale. The counter argument is that the requirement in IFRS 5 does not scope out situations in which the retained interest represents a joint operation. Furthermore, the loss of control of a subsidiary is a significant economic event in that it changes the relationship between the entity and the investee fundamentally, and therefore it would be appropriate to classify all assets and liabilities of the subsidiary as held for sale. Some further argue that classification as held for sale will depend on whether the operation of the joint operation represents a business. If it does, it could be argued that the principles of IFRS 3 – Business Combinations – should be applied, which demonstrates that effectively all assets and liabilities of the subsidiary are being disposed of. On that analysis, classification of all assets and liabilities of the subsidiary as held for sale is appropriate. However, as the standard is not explicit, judgement will be required.
If the subsidiary in question meets the definition of a discontinued operation, the standard's presentation and disclosure requirements for discontinued operations apply (see 3.2 below). [IFRS 5.36A].
IFRS 5 does not explicitly extend these requirements to loss of control of a subsidiary in other ways. Given the alignment of the rules on sales with distributions to owners, it seems clear that partial distributions triggering loss of control would result in held for distribution classification.
However, control may be lost in other ways. Examples would include a subsidiary issuing shares to third parties, or control established by contract coming to an end.
The Basis for Conclusions on the standard sheds some light on the views of the Board. In particular, the following:
‘At the date control is lost, all the subsidiary's assets and liabilities are derecognised and any investment retained in the former subsidiary is recognised. Loss of control is a significant economic event that changes the nature of an investment. The parent-subsidiary relationship ceases to exist and an investor-investee relationship begins that differs significantly from the former parent-subsidiary relationship. Therefore, the new investor-investee relationship is recognised and measured initially at the date when control is lost.
‘The Board concluded that, under the sale plan described above, the controlling interest in the subsidiary is, in substance, exchanged for a non-controlling interest. Therefore, in the Board's view, being committed to a plan involving loss of control of a subsidiary should trigger classification as held for sale.’ [IFRS 5.BC24B-24C].
This, and the fact that the standard applies to assets held for distribution to owners, may suggest that the explicit rules for partial sales of assets resulting in loss of control should also apply to loss of control from other causes. However, the standard is not explicit, and the IFRIC concluded in January 20161 that it could not resolve the issue, and decided it should be considered for a broad-scope project on IFRS 5 (future developments of IFRS 5 are discussed at 6 below). In the meantime, judgement will be required.
In accordance with IAS 28 – Investments in Associates and Joint Ventures, IFRS 5 will apply to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale (see 2.1.2 above and also Chapter 11 at 6). Any retained portion of such an investment that has not been so classified should be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, any retained interest should be accounted for in accordance with IFRS 9 – Financial Instruments – unless the retained interest continues to be an associate or a joint venture, in which case the equity method should be used.
If such an investment ceases to be classified as held for sale, it should be accounted for using the equity method retrospectively from the date of its original classification as held for sale. Financial statements for the periods since classification as held for sale should be amended accordingly. [IAS 28.20, 21].
IFRS 5's classification and presentation requirements apply to all recognised non-current assets (which is defined in the same way as in IAS 1, discussed at 2.1 above) and disposal groups. However, the measurement provisions of the standard do not apply to the following assets (which remain covered by the standards listed) either as individual assets or as part of a disposal group: [IFRS 5.2, 5]
IFRS 5 requires that immediately before the initial classification of an asset (or disposal group) as held for sale, the carrying amount of the asset (or all the assets and liabilities in the group) should be measured in accordance with applicable IFRSs. [IFRS 5.18]. In other words, an entity should apply its usual accounting policies up until the criteria for classification as held for sale are met.
Thereafter a non-current asset (or disposal group) classified as held for sale should be measured at the lower of its carrying amount and fair value less costs to sell. [IFRS 5.15]. IFRS 13 – Fair Value Measurement – defines fair value as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date’ (see Chapter 14). [IFRS 13.9]. Costs to sell are defined as ‘the incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and income tax expense.’ [IFRS 5 Appendix A]. When the sale is expected to occur beyond one year, the costs to sell should be measured at their present value. Any increase in the present value of the costs to sell that arises from the passage of time should be presented in profit or loss as a financing cost. [IFRS 5.17]. For disposal groups, the standard adopts a portfolio approach. It requires that if a non-current asset within the scope of its measurement requirements is part of a disposal group, the measurement requirements should apply to the group as a whole, so that the group is measured at the lower of its carrying amount and fair value less costs to sell. [IFRS 5.4]. It will still be necessary to apportion any write down to the underlying assets of the disposal group, but no element is apportioned to items outside the scope of the standard's measurement provisions. This is discussed further at 2.2.3 below.
Items held for distribution to owners should be measured at the lower of carrying amount and fair value less costs to distribute. Costs to distribute are incremental costs directly attributable to the distribution, excluding finance costs and income tax expense. [IFRS 5.15A].
If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale (which, as discussed at 2.1.2 above, are subtly different for assets acquired exclusively with a view to subsequent disposal), applying the above requirements will result in the asset (or disposal group) being measured on initial recognition at the lower of its carrying amount had it not been so classified (for example, cost) and fair value less costs to sell. This means that if the asset (or disposal group) is acquired as part of a business combination, it will be measured at fair value less costs to sell. [IFRS 5.16].
The implementation guidance accompanying the standard provides the following illustration of a subsidiary acquired with a view to sale. [IFRS 5.IG13].
The final sentence in the above example says no further analysis of the assets and liabilities is required. This must refer to there being no such disclosure requirement for financial statements. A detailed purchase price analysis and tracking of the acquired entity may still be needed, notwithstanding a partial relaxation of what is required to be disclosed by IFRS 5. This may be needed to be able to determine the split between gross assets and liabilities and how movements in the carrying amounts are reflected in profit or loss, or other comprehensive income.
While a non-current asset is classified as held for sale or while it is part of a disposal group classified as held for sale it should not be depreciated or amortised. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale should continue to be recognised. [IFRS 5.25].
On subsequent remeasurement of a disposal group, the standard requires that the carrying amounts of any assets and liabilities that are not within the scope of its measurement requirements, be remeasured in accordance with applicable IFRSs before the fair value less costs to sell of the disposal group is remeasured. [IFRS 5.19].
The requirement to measure a non-current asset or disposal group held for sale at the lower of carrying amount and fair value less costs to sell may give rise to a write down in value (impairment loss) and possibly its subsequent reversal. As noted above, the first step is to account for any items outside the scope of the standard's measurement rules in the normal way. After that, any excess of carrying value over fair value less costs to sell should be recognised as an impairment. [IFRS 5.20].
Any subsequent increase in fair value less costs to sell of an asset up to the cumulative impairment loss previously recognised either in accordance with IFRS 5 or in accordance with IAS 36 should be recognised as a gain. [IFRS 5.21]. In the case of a disposal group, any subsequent increase in fair value less costs to sell should be recognised:
Any impairment loss (or any subsequent gain) recognised for a disposal group should be allocated to the non-current assets in the group that are within the scope of the measurement requirements of IFRS 5. The order of allocation should be:
This is illustrated by the standard with the following example: [IFRS 5.IG10]
In the first table of this example, it is not particularly clear what the meaning and purpose of the left hand column is. The fact that some of the figures are different in each column, seems to indicate that the column header ‘Carrying amount at the reporting date before classification as held for sale’ is referring to the opening statement of financial position at the beginning of the period in which the classification is made. As noted at 2.2.2.A above, an entity is required to remeasure the assets as normal under the relevant standards immediately before classifying them as held for sale. This would mean the difference of ₹1,100 reflects routine accounting entries (such as depreciation and revaluation) from the start of the period to the date of classification as held to sale. Also worthy of note is that the example does not say where the entity recognises the loss of ₹1,100. Given that the disposal group contains investments in equity instruments, some of this amount might be recorded in other comprehensive income rather than in profit or loss. Similarly, movements in property plant and equipment held at revalued amounts may be recorded directly in other comprehensive income.
One thing which the example above fails to illustrate is that the measurement requirements of the standard are incomplete. It is quite possible that the required impairment exceeds the carrying value of the non-current assets within the scope of the standard's measurement rules. IFRS 5 is silent on what to do in such circumstances. Possible approaches would be:
For the present, entities will need to apply judgement based on individual circumstances. This issue was brought to the attention of the Interpretations Committee which referred it to the IASB. The IASB intended to address the issue through a future amendment to IFRS 5. The Board decided tentatively to consider amending IFRS 5 as a matter of priority and to work with the FASB to ensure IFRS 5 remains aligned with US GAAP.2 However, at its December 2009 meeting, the IASB ‘decided not to add a project to its agenda to address the impairment measurement and reversal issues at this time.’3 Possible future developments are discussed at 6 below.
The standard contains a reminder that requirements relating to derecognition are set out in IAS 16 for property, plant and equipment (discussed in Chapter 18 at 7), and IAS 38 – Intangible Assets – for intangible assets (discussed in Chapter 17 at 9.5) and notes that a gain or loss not previously recognised by the date of the sale of a non-current asset (or disposal group) should be recognised at the date of derecognition. [IFRS 5.24]. This may happen, for example, if the fair value less costs to sell of an asset classified as held for sale at the end of the previous period falls during the current period.
The general requirement, discussed in Chapter 3 at 3.1.1, to classify items in the statement of financial position as current or non-current (or present them broadly in order of liquidity) is overlaid with further requirements by IFRS 5 regarding non-current assets held for sale and disposal groups. IFRS 5's aim is that entities should present and disclose information that enables users of the financial statements to evaluate the financial effects of disposals of non-current assets (or disposal groups). [IFRS 5.30]. In pursuit of this aim, IFRS 5 requires:
These assets and liabilities should not be offset and presented as a single amount. In addition:
The requirement in (b) was included in response to comments made to the IASB during the development of the standard. The Board describes the development as follows: ‘Respondents to ED 4 noted that the separate presentation within equity of amounts relating to assets and disposal groups classified as held for sale (such as, for example, unrealised gains and losses on available-for-sale assets and foreign currency translation adjustments) would also provide useful information. The Board agreed and has added such a requirement to the IFRS.’ [IFRS 5.BC58]. On that basis, it might be considered that any non-controlling interest within equity relating to non-current assets (or disposal groups) held for sale should also be presented separately as it would seem to represent equally useful information about amounts within equity. However, such disclosure of non-controlling interests is not specifically required by the standard so would remain voluntary. As noted at 3.2 below, the standard requires an analysis of the income for the period attributable to owners between continuing and discontinued operations.
IFRS 5 is silent as to whether the information specified in (b) above should be on the face of the statement of financial position or in a note. However, the implementation guidance to IFRS 5 shows a caption called ‘Amounts recognised in other comprehensive income and accumulated in equity in relation to non-current assets held for sale’ and illustrates the requirements as follows: [IFRS 5.IG12]
Once assets have been classified as non-current they should not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with IFRS 5. So, for example, a mere intention to sell an asset would not trigger held for sale accounting until all the criteria discussed at 2.1.2 above have been met.
Assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale also should not be classified as current unless they meet the slightly relaxed criteria to be classified as held for sale (see 2.1.2 above). [IFRS 5.3].
The treatment of comparatives when the classification as held for sale commences or ceases is discussed at 4 below.
An asset (or disposal group) should cease to be classified as held for sale (or distribution) if the criteria discussed in 2.1.2 are no longer met. [IFRS 5.26].
If an individual asset or liability is removed from a disposal group classified as held for sale or classified as held for distribution, the remaining assets and liabilities of the disposal group should only continue to be measured as a group if the group still meets the criteria to be held for sale (or for distribution) under IFRS 5. Otherwise, the remaining non-current assets of the group that individually meet the criteria should be measured individually at the lower of their carrying amounts and fair values less costs to sell at that date. Any non-current assets that do not meet the criteria should cease to be classified as held for sale or held for distribution. [IFRS 5.29].
A non-current asset (or disposal group) that ceases to be classified as held for sale or for distribution (or ceases to be included in a disposal group which is so classified) should be measured at the lower of:
Regarding (b) above, the standard notes that if the non-current asset is part of a cash-generating unit, its recoverable amount is the carrying amount that would have been recognised after the allocation of any impairment loss arising on that cash-generating unit in accordance with IAS 36. [IFRS 5.27].
Recoverable amount is defined as the higher of:
Value in use is defined as ‘the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.’ [IFRS 5 Appendix A].
Any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale or for distribution should be included:
Financial statements for the periods since classification as held for sale should be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The adjustment should be presented in the same caption in the statement of comprehensive income described at (b) above.
The treatment of comparative information on the cessation of held-for-sale classification is discussed at 4.2 below.
An entity may change the manner in which an asset (or disposal group) will be disposed of from being held for sale to being held for distribution to owners (or vice versa). Such a change raises the question as to whether the previous accounting treatment under IFRS 5 should be ‘unwound’ and started afresh based on the new disposal method, or whether a seamless transition from one to the other should be treated as a continuation of one overall disposal plan.
When the manner of disposal changes directly from one method to the other, the change in classification is considered to be a continuation of the original plan of disposal. In such cases:
As discussed at 3.2 below, IFRS 5 requires the presentation of a single amount on the face of the or statement of comprehensive income relating to discontinued operations, with further analysis either on the face of the statement or in the notes.
IFRS 5 defines a discontinued operation as ‘a component of an entity that either has been disposed of, or is classified as held for sale, and
Classification as held for sale is discussed at 2.1 above. For the purposes of the above definition, a ‘component of an entity’ is also defined by the standard as comprising ‘operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.’ [IFRS 5.31, Appendix A]. IFRS 5 defines cash generating unit in the same way as IAS 36, that is as ‘the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.’ [IFRS 5 Appendix A]. Cash generating units are discussed in Chapter 20 at 3.
It seems unlikely that this definition of a discontinued operation would ever be met by a single non-current asset (for example, a single building or single equity-accounted investment). Accordingly, a discontinued operation will also be a ‘disposal group’ which is 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 (discussed at 2.1.1 above).
The meaning of ‘separate major line of business or geographical area’ was raised with the Interpretation Committee. It concluded, in January 2016, that it could not provide additional clarity on this matter, and decided it should be considered for a broad-scope project on IFRS 5 (possible future developments of IFRS 5 are discussed at 6 below).4 In the meantime, judgement will be required.
As discussed at 2.1.2.C above, IFRS 5 stipulates that a non-current asset (or disposal group) that is to be abandoned should not be classified as held for sale. This includes non-current assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold. However, if the disposal group to be abandoned meets the criteria above for being a discontinued operation the standard requires it to be treated as such ‘at the date on which it ceases to be used.’ [IFRS 5.13]. In other words, the treatment as discontinued only starts in the period when abandonment actually occurs (see Example 4.6 below).
A non-current asset that has been temporarily taken out of use should not be accounted for as if it had been abandoned. [IFRS 5.14]. Accordingly it would not be disclosed as a discontinued operation. The standard provides an illustration of a discontinued operation arising from abandonment upon which the following example is based. [IFRS 5.IG9].
IFRS 5 requires the presentation of a single amount on the face of the statement of comprehensive income comprising the total of:
This single amount should be further analysed (either on the face of the statement or in the notes) into:
The analysis is not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition (see 2.2.2 above). [IFRS 5.33(b)].
If the required analysis is presented on the face of the statement of comprehensive income it should be presented in a section identified as relating to discontinued operations, i.e. separately from continuing operations. [IFRS 5.33A]. The standard also makes clear that any gain or loss on the remeasurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation should not be included within these amounts for discontinued operations, but be included in profit or loss from continuing operations. [IFRS 5.37].
IFRS 5 requires disclosure of the amount of income from continuing operations and discontinued operations attributable to owners of the parent. This may be given either in the notes or on the face of the statement of comprehensive income. [IFRS 5.33(d)].
IFRS 5 requires that all the above disclosures be re-presented for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the reporting date for the latest period presented. [IFRS 5.34]. Accordingly, adjustments to the comparative information as originally reported will be necessary for those disposal groups categorised as discontinued operations. Comparative information relating to discontinued operations is discussed further at 4 below.
The implementation guidance accompanying IFRS 5 provides the following illustration of the presentation of discontinued operations. [IFRS 5.IG11]. (Note that the illustrative example assumes that the entity did not recognise any components of other comprehensive income in the periods presented.)
The above reflects the requirement to disclose the amount of income from continuing operations and discontinued operations attributable to owners of the parent. It is noteworthy that the standard's illustrative example goes beyond what is strictly required by also giving an equivalent analysis for income attributable to non-controlling interests.
Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period should be classified separately in discontinued operations. The nature and amount of the adjustments should be disclosed. Examples given by the standard of circumstances in which these adjustments may arise include the following:
In addition, IFRS 5 requires disclosure of the net cash flows attributable to the operating, investing and financing activities of discontinued operations. The standard allows that these disclosures may be presented either in the notes or on the face of the financial statements. These disclosures are not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition (see 2.2.2 above). [IFRS 5.33(c)].
As a discontinued operation will also be a disposal group, the requirements regarding presentation of disposal groups in the statement of financial position (discussed at 2.2.4 above) also apply to discontinued operations.
Notwithstanding the one line presentation discussed above, discontinued operations remain consolidated in group financial statements. That means any transactions between discontinued and continuing operations are eliminated as usual in the consolidation. As a consequence, the amounts ascribed to the continuing and discontinued operations will be income and expense only from transactions with counterparties external to the group. Importantly, this means that (unless additional disclosure is presented) the results presented on the face of the statement of comprehensive income will not necessarily represent the activities of the operations as individual entities, particularly when there has been significant trading between the continuing and discontinued operations. Some might consider the results for the continuing and discontinued operations on this basis to be of little use to readers of accounts. An argument could be made that allocating external transactions to or from the discontinued operation would yield more meaningful information.
The Interpretation Committee discussed this matter and published its agenda decision in January 2016.5 In that decision the committee includes the following: ‘The Interpretations Committee noted that neither IFRS 5 nor IAS 1 includes requirements regarding the presentation of discontinued operations that override the consolidation requirements in IFRS 10 – Consolidated Financial Statements. The Interpretations Committee also noted that paragraph B86(c) of IFRS 10 requires elimination of, among other things, income and expenses relating to intragroup transactions, and not merely intragroup profit. Consequently, the Interpretations Committee observed that not eliminating intragroup transactions would be inconsistent with the elimination requirements of IFRS 10.’
The Committee went on to observe: ‘The Interpretations Committee also noted that paragraph 30 of IFRS 5 requires an entity to present and disclose information that enables users of the financial statements to evaluate the financial effects of discontinued operations and disposal activity. In the light of this objective, the Interpretations Committee observed that, depending on the particular facts and circumstances, an entity may have to provide additional disclosures in order to enable users to evaluate the financial effects of discontinued operations.’
As discussed in Chapter 3 at 2.4, IAS 1 requires the presentation of comparative information. IFRS 5 deals with the particular requirements for non-current assets held for sale (and disposal groups) and discontinued operations.
Entities will need to consider whether any (and, if so, what) changes are necessary to comparative information as previously reported whenever:
For non-current assets and disposal groups not qualifying as discontinued operations there are no special requirements relating to presentation in the statement of comprehensive income, accordingly no restatement of comparative amounts would be relevant.
When a component of an entity becomes classified as a discontinued operation, separate presentation of the total of its results for the period and any gain or loss on remeasurement is required on the face of the statement (see 3.2 above). IFRS 5 requires that these disclosures be re-presented for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the reporting date for the latest period presented. [IFRS 5.34]. Accordingly, adjustments to the comparative information as originally reported will be necessary for those disposal groups categorised as discontinued operations.
IFRS 5 states that an entity shall not reclassify or re-present amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held for sale in the statements of financial position for prior periods to reflect the classification in the statement of financial position for the latest period presented. [IFRS 5.40]. The standard has no separate requirements relating to the statement of financial position for a disposal group also qualifying as a discontinued operation and accordingly comparatives are not adjusted.
As discussed at 2.2.5 above, when a non-current asset ceases to be classified as held for sale the measurement basis for it reverts to what it would have been if it had not been so classified at all (or recoverable amount if lower). Typically this would require a ‘catch-up’ depreciation charge as depreciation would not have been accounted for while it was held for sale. The standard explicitly requires this to be a current year charge. [IFRS 5.28]. This seems to indicate that for non-current assets and disposal groups ceasing to be so classified the measurement of items in comparative information (statement of comprehensive income and statement of financial position) should not be revisited. This requirement applies equally to discontinued operations.
The above is supplemented with the following. ‘Financial statements for the periods since classification as held for sale shall be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The entity shall present that adjustment in the same caption in the statement of comprehensive income’ within continuing operations used to record any gains and losses on non-current assets (or disposal groups) held for sale. [IFRS 5.28, 37].
IAS 28 clarifies that, as regards associates and joint ventures, the amendment of financial statements ‘for the periods since classification as held for sale’ means retrospectively from the date of its original classification as held for sale. [IAS 28.21]. This clarification is not repeated in IFRS 10 or IFRS 11 – Joint Arrangements. However, we believe the clarification should apply to assets or disposal groups within the scope of those standards. As a result, when a disposal group or non-current asset that was classified as held for sale represented an entire subsidiary, joint operation, joint venture or associate or was a portion of an interest in a joint venture or associate, and subsequently no longer qualifies as held for sale, financial statements must be amended retrospectively as though the disposal group or non-current asset never qualified as held for sale.
This area has been considered by the Interpretations Committee. The committee decided not to add it to its agenda, noting that IFRS 5 is a possible subject for a research project by the IASB which would examine a number of areas (possible future developments of IFRS 5 are discussed at 6 below). In its agenda decision the Committee observed the following: ‘paragraph 28 requires the effects of a remeasurement (upon ceasing to be classified as held for sale) of a non-current asset to be recognised in profit or loss in the current period. Paragraph 28 also requires financial statements for the periods since classification as held for sale or as held for distribution to owners to be “amended accordingly” if the disposal group or non-current asset that ceases to be classified as held for sale or as held for distribution to owners is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The issue relates to a situation in which a disposal group that consists of both a subsidiary and other non-current assets ceases to be classified as held for sale. In such a situation, should an entity recognise the remeasurement adjustments relating to the subsidiary and the other non-current assets in different accounting periods, and should any amendment apply to presentation as well as to measurement?’6 This articulation of the question by the Committee suggests that, until any amendment to the standard is made, judgement may be required.
Regarding the treatment of discontinued operations in the statement of comprehensive income, the standard states that if an entity ceases to classify a component as held for sale, the results of operations of the component previously presented in discontinued operations should be reclassified and included in income from continuing operations for all periods presented. The amounts for prior periods should be described as having been re-presented. [IFRS 5.36].
As discussed at 4.1.2 above, the amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held for sale in the comparative statement of financial position should not be reclassified or re-presented.
As discussed at 2.2.4 and 3.2 above, IFRS 5 sets out detailed requirements for the prominent presentation of amounts relating to non-current assets held for sale, disposal groups and discontinued operations. In particular, and as discussed at 3.2 above, the single amount reflecting the income from discontinued operations must be analysed into its components, either on the face of the statement of comprehensive income or in the notes. In addition, disclosure is required in the notes in the period in which a non-current asset (or disposal group) has been either classified as held for sale or sold:
If a non-current asset (or disposal group) meets the criteria to be classified as held for sale after the reporting date but before the financial statements are authorised for issue, the information specified in (a), (b) and (d) above should also be disclosed in the notes. [IFRS 5.12].
Further, should:
then IFRS 5 requires disclosure of, in the period of the decision to change the plan to sell the non-current asset (or disposal group), a description of the facts and circumstances leading to the decision and the effect of the decision on the results of operations for the period and any prior periods presented. [IFRS 5.42].
IFRS 5 explains that disclosures in other IFRSs do not apply to non-current assets (or disposal groups) classified as held for sale or discontinued operations unless those IFRSs require:
The requirement in the second bullet above reflects the fact that such assets continue to be measured in accordance with the specific IFRS dealing with them. In practice, much of the requirement will be satisfied by the disclosure of accounting policies. The requirement for other disclosures will depend on the standard concerned. An example would be actuarial assumptions used to measure a pension plan as the surplus or deficit is not within the measurement scope of IFRS 5.
IFRS 12 – Disclosure of Interests in Other Entities – clarifies that all the disclosures of that standard apply to interests that are classified as held-for-sale, with the exception only of those disclosures (summarised financial information) identified by IFRS 12 as not being required. [IFRS 12.5A, 5B17].
The standard goes on to say that additional disclosures about non-current assets (or disposal groups) classified as held for sale or discontinued operations may be necessary to comply with the general requirements of IAS 1, in particular paragraphs 15 and 125 of that Standard. [IFRS 5.5B]. Those provisions deal with fair presentation and estimation uncertainty and are discussed in Chapter 3 at 4.1.1 and at 5.2.1.
The IASB has, over recent years, discussed a number of issues related to IFRS 5, as set out below.7
Item (i) above was referred to the Interpretations Committee for consideration. It published an agenda decision in January 2016, which is discussed at 3.3 above. As regards item (k) above, the Board has amended IFRS 12 (see 5.2 above).
With regard to the rest of the items, the IASB included a reference to them in its request for views in its 2015 agenda consultation. In November 2016, the Board published IASB Work Plan 2017‑2021: Feedback Statement on the 2015 Agenda Consultation. This document notes: ‘The Board agreed that the best way to start a review of these issues would be through a post-implementation review of IFRS 5. The Board intends to carry out that review after the forthcoming post-implementation reviews of IFRS 13 and of IFRS Standards 10–12.’
The Board completed its post-implementation review of IFRS 13 in December 2018.8 At the time of writing, post-implementation reviews of the other standards mentioned have not begun.
Time will tell whether the Board will conduct a review of IFRS 5 and, if it does, which, if any, of the matters discussed above will be addressed.