Scope of IAS 36

IAS 36 is applicable to all assets except:

1. Inventories (IAS 2);
2. Recognised contract assets and assets arising from costs to obtain or fulfil a contract (IFRS 15);
3. Deferred tax assets (IAS 12);
4. Assets arising from employee benefits (IAS 19);
5. Financial assets within the scope of IFRS 9;
6. Investment property measured at fair value (IAS 40);
7. Biological assets related to agricultural activity measured at fair value less costs to sell (IAS 41);
8. Deferred acquisition costs and intangible assets arising from an insurer's contractual right under insurance contracts (IFRS 4); and
9. Non‐current assets (or disposal groups) classified as held for sale (IFRS 5).

This standard applies to financial assets classified as:

1. Subsidiaries, as defined in IFRS 10;
2. Associates, as defined in IAS 28; and
3. Joint ventures, as defined in IFRS 11.

Principal Requirements of IAS 36

In general, the standard provides the procedures that an entity is required to apply to ensure that its assets are not carried at amounts higher than their recoverable amount. If an asset's carrying amount is more than its recoverable amount (the amount to be recovered through use or sale of the asset), an impairment loss is recognised. IAS 36 requires an entity to assess at the end of each reporting period whether there is any indication that an asset may be impaired. Tests for impairment are only necessary when there is an indication that an asset might be impaired (but are assessed annually for intangible assets having an indefinite useful life, intangible assets not yet available for use and goodwill).

When carried out, the test is applied to the smallest group of assets for which the entity has identifiable cash flows, called a “cash‐generating unit.” The carrying amount of the asset or assets in the cash‐generating unit is compared with the recoverable amount, which is the higher of the asset's (or cash‐generating unit's) fair value less costs to sell and the present value of the cash flows expected to be generated by using the asset (“value in use”). If the higher of these values is lower than the carrying amount, an impairment loss is recognised for the difference normally in profit or loss.

Identifying Impairments

According to IAS 36, at each financial reporting date the reporting entity should determine whether there are conditions that would indicate that impairments may have occurred. If such indicators are present, the recoverable amount should be estimated.

The standard provides a set of indicators of potential impairment and suggests that these represent a minimum array of factors to be considered. An entity may also identify other indicators. At a minimum, the following external and internal indicators of possible impairments are to be given consideration on an annual basis:

1. Asset value declines, beyond the declines expected as a result of the passing of time or normal usage;
2. Significant changes with an adverse effect in the technological, market, economic or legal environments in which the entity operates, or the specific market to which the asset is dedicated;
3. Increases in the market interest rate or other market‐oriented rate of return such that are likely to affect the discount rate used in determining the value in use of an asset and decreasing the recoverable amount materially;
4. The carrying amount of the entity's net asset value is more than its market capitalisation;
5. Evidence of obsolescence or of physical damage to an asset or group of assets;
6. There have been significant internal changes to the entity or its operations adversely affecting the entity, such as assets becoming idle, product discontinuations, restructurings or reductions in the expected remaining useful life of its asset;
7. Internal reporting evidence indicating that the economic performance of the asset or group of assets is, or will become, worse than previously expected; and
8. For an investment in a subsidiary, joint venture or associate, the investor recognises a dividend from the investment and evidence is available that (1) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated financial statements of the investee's net assets, including associated goodwill; or (2) the dividend exceeds the total comprehensive income of the subsidiary, joint venture or associate in the period the dividend is declared.

The mere fact that one or more of the foregoing indicators suggests that there might be cause for concern about possible asset impairment does not necessarily mean that formal impairment testing must proceed in every instance, although in the absence of a plausible explanation why the signals of possible impairment should not be further considered, the implication would be that some follow‐up investigation is needed.

Computing Recoverable Amounts—General Concepts

IAS 36 defines impairment as the excess of carrying amount over recoverable amount and defines recoverable amount as the higher of fair value less costs to sell and value in use. If the one is higher than the carrying amount, the other need not to be calculated. The objective is to recognise an impairment loss when the recoverable amount of an asset (or cash‐generating unit) is lower than the carrying value.

Determining Fair Value Less Costs to Sell

The determination of the fair value less costs to sell (i.e., net selling price) of the asset being evaluated might present difficulties when market values are not applicable. IFRS 13, Fair Value Measurement, deals specifically with these issues. Refer to Chapter 25 for more detail on how IFRS suggests the fair values are to be determined. Cost to sell represents the incremental cost directly attributable to a disposal of an asset (or disposal group) and specifically excludes finance cost and income tax expenses.

Computing Value in Use

The computation of “value in use” involves a two‐step process: first, future cash flows must be estimated; and second, the present value of these cash flows must be calculated by application of an appropriate discount rate.

Projection of future cash flows must be based on reasonable assumptions. Exaggerated revenue growth rates, significant anticipated cost reductions or unreasonable useful lives for plant assets must be avoided if meaningful results are to be obtained. In general, recent experience is a fair guide to the near‐term future, but a recent sudden growth spurt should not be extrapolated to more than the very near‐term future. For example, if growth over the past five years averaged 5%, but in the latest year equalled 15%, unless the recent rate of growth can be identified with factors that demonstrate it as being sustainable, a future growth rate of 5%, or slightly higher, would be more supportable.

IAS 36 stipulates that steady or declining growth rates must be utilised for periods beyond those covered by the most recent budgets and forecasts. It further states that, barring an ability to demonstrate why a higher rate is appropriate, the growth rate should not exceed the long‐term growth rate of the industry in which the entity participates.

The guidance offered by IAS 36 suggests that only normal, recurring cash inflows and outflows from the continuing use of the asset being evaluated should be considered, to which any estimated residual value at the end of the asset's useful life would be added. In determining the cash flows from operations, the company should take into account the effect of the business developments on working capital requirements. These working capital requirements include both assets and liabilities and can be positive and negative. For example, if a growth of revenues is estimated for the coming five years, it can be expected that under normal business circumstances, the receivables increase in a similar direction. The same would be the case for any prepayment of services, for instance in the publishing industry, where many subscriptions are paid up‐front.

Non‐cash costs, such as depreciation of the asset, obviously must be excluded from this calculation, since, in the case of depreciation, this would in effect double count the very item being measured. Furthermore, projections should always exclude cash flows related to financing the asset—for example, interest and principal repayments on any debt incurred in acquiring the asset—since operating decisions (e.g., keeping or disposing of an asset) are to be evaluated separately from financing decisions (borrowing, leasing, buying with equity capital funds). Also, cash flow projections must relate to the asset in its existing state and in its current use, without regard to possible future enhancements. Income tax effects are also to be disregarded (i.e., the entire analysis should be on a pre‐tax basis). An entity should translate the present value of future cash flows estimated in the foreign currency using the spot exchange rate at the date of the value‐in‐use calculation.

Cash‐Generating Units

Under IAS 36, when cash flows cannot be identified for individual assets (as will frequently be the case), assets must be grouped to permit an assessment of future cash flows. The requirement is that this grouping be performed at the lowest level possible, which would be the smallest aggregation of assets for which independent cash flows can be identified. In practice, this unit may be a department, a product line or a factory, for which the output of product and the input of raw materials, labour and overhead can be identified.

Thus, while the precise contribution to overall cash flow made by, say, a given drill press or lathe may be impossible to surmise, the cash inflows and outflows of a department which produces and sells a discrete product line to an identified group of customers can be more readily determined. To comply with IFRS, the extent of aggregation must be the minimum necessary to develop cash flow information for impairment assessment and no greater.

A too‐high level of aggregation is prohibited for a very basic reason: doing so could permit some impairments to be concealed by effectively offsetting impairment losses against productivity or profitability gains derived from the expected future use of other assets. IAS 36 requires that cash‐generating units be defined consistently from period to period. In addition to being necessary for consistency in financial reporting from period to period, which is an important objective per se, it is also needed to preclude the opportunistic redefining of cash‐generating groups affected to minimise or eliminate impairment recognition.

Discount Rate

The other measurement issue in computing value in use comes from identifying the appropriate discount rate to apply to projected future cash flows. The discount rate is comprised of subcomponents. The base component of the discount rate is the current market rate, which should be identical for all impairment testing at any given date. This must be adjusted for the risks specific to the asset, which have not been adjusted in the projected cash flows. The interest rate to apply must reflect current market conditions as of the end of the reporting period.

In practice, the asset class risk adjustment can be built into the cash flows. Appendix A to the standard discusses what it describes as the traditional approach to using present value techniques to measure value in use, where forecast cash flows are discounted using a rate that is adjusted for uncertainties. It also describes the expected cash flow method, where the forecast cash flows are directly adjusted to reflect uncertainty and then discounted at the market rate. These are alternative approaches and care must be exercised to apply one or the other correctly. Most importantly, risk should not be adjusted for twice in computing the present value of future cash flows.

IAS 36 suggests that identifying the appropriate risk‐adjusted cost of capital to employ as a discount rate can be accomplished by reference to the implicit rates in current market transactions (e.g., leasing transactions), or from the weighted‐average cost of capital of publicly traded entities operating in the same industry grouping. Such statistics are available for certain industry segments in selected (but not all) markets. The entity's own recent transactions, typically involving leasing or borrowing to buy other non‐current assets, will be highly salient information in estimating the appropriate discount rate to use.

When risk‐adjusted rates are not available, however, it will become necessary to develop a discount rate from surrogate data. The two steps to this procedure are:

1. To identify the pure time value of money for the requisite time horizon over which the asset will be utilised; and
2. To add an appropriate risk premium to the pure interest factor, which is related to the variability of future cash flows or other, sometimes unidentifiable, factors that market participants would reflect in the pricing.

Regarding the first component, the life of the asset being tested for impairment will be critical; short‐term obligations almost always carry a lower rate than intermediate‐ or long‐term ones, although there have been periods when “yield curve inversions” have been dramatic. As to the second element, projected future cash flows having greater variability (which is the technical definition of risk) will be associated with higher risk premiums.

Of these two discount rate components, the latter is likely to prove the more difficult to determine or estimate in practice. IAS 36 provides discussion of the methodology to utilise, and this should be carefully considered before embarking on this procedure. It addresses such factors as country risk, currency risk and pricing risk but also the (il)liquidity of the (group of) asset(s). The latter is also referred to as the small‐firm premium.

Corporate Assets

Corporate assets, such as headquarters buildings and shared equipment, which do not themselves generate identifiable cash flows, need to be tested for impairment together with other non‐current assets. However, these present a particular problem in practice due to the inability to identify cash flows deriving from the future use of these assets. A failure to test corporate assets for impairment would permit such assets to be carried at amounts that could, under some circumstances, be at variance with requirements under IFRS. It would also permit a reporting entity to deliberately evade the impairment testing requirements by opportunistically defining certain otherwise productive assets as being corporate assets.

To avoid such results, IAS 36 requires that corporate assets be allocated among or assigned to the cash‐generating unit or units with which they are most closely associated. For a large and diversified entity, this probably implies that corporate assets will be allocated among most or all of its cash‐generating units, perhaps in proportion to annual turnover (revenue). Since ultimately an entity must generate sufficient cash flows to recover its investment in all non‐current assets, whether assigned to operating divisions or to administrative groups, there are no circumstances in which corporate assets can be isolated and excluded from impairment testing.

Accounting for Impairments

If the recoverable amount of the cash‐generating unit is lower than its carrying amount, an impairment must be recognised. The mechanism for recording an impairment loss depends upon whether the entity is accounting for non‐current assets at historical cost subject to depreciation or on the revaluation basis. Impairments computed for assets carried at historical cost will be recognised as charges against current period profit or loss.

For assets grouped into cash‐generating units, it will not be possible to determine which specific assets have suffered impairment losses when the unit as a whole has been found to be impaired, and so IAS 36 prescribes the allocation approach. If the cash‐generating unit in question has been allocated any goodwill, any impairment should be allocated fully to goodwill until its carrying amount has been reduced to zero. Any further impairment would be allocated proportionately to all the other assets in that cash‐generating unit. In practice, the impairment loss is allocated against the non‐monetary assets that are carried, as the carrying amount of monetary assets usually approximates actual values.

If the entity employs the revaluation method of accounting for non‐current assets, the impairment adjustment will be treated as the partial reversal of a previous upward revaluation. However, if the entire revaluation account is eliminated due to the recognition of an impairment, any excess impairment should be charged to profit or loss. In other words, the revaluation account cannot contain a net debit balance.

When the calculated impairment is greater than the carrying amount of an asset, a liability (impairment for the asset) can only be created if it is required by another IFRS. After an impairment of an asset, the depreciation needs to be adjusted to reflect the revised carrying amount and residual values. The deferred tax effect of impairment is recognised by comparing the revised carrying amount with the tax base of the asset by applying the guidance in IAS 12, Income Taxes (refer to Chapter 26).

Reversals of Impairments under the Historical Cost Method of Accounting

IFRS provides for recognition of reversals of previously recognised impairments. To recognise a recovery of a previously recognised impairment, a process like that which led to the original loss recognition must be followed. This begins with consideration, at the end of each reporting period, of whether there are indicators of possible impairment recoveries, utilising external and internal sources of information. Data relied upon could include that pertaining to material market value increases; changes in the technological, market, economic or legal environment or the market in which the asset is employed; and the occurrence of a favourable change in interest rates or required rates of return on assets which would imply changes in the discount rate used to compute value in use. Also, to be given consideration are data about any changes in the manner in which the asset is employed, as well as evidence that the economic performance of the asset has exceeded expectations and/or is expected to do so in the future.

If one or more of these indicators is present, it will be necessary to compute the recoverable amount of the asset in question or, if appropriate, of the cash‐generating unit containing that asset, to determine if the current recoverable amount exceeds the carrying amount of the asset, where it had been previously reduced for impairment.

If that is the case, a recovery can be recognised under IAS 36. The amount of recovery to be recognised is limited, however, to the difference between the current carrying amount and the amount which would have been the current carrying amount had the earlier impairment not been recognised. Note that this means that restoration of the full amount at which the asset was carried at the time of the earlier impairment cannot be made, since time has elapsed between these two events and further depreciation of the asset would have been incurred in the interim.

Where a cash‐generating unit including goodwill has been impaired, and the impairment has been allocated first to the goodwill and then pro rata to the other assets, only the amount allocated to non‐goodwill assets can be reversed. The standard specifically prohibits the reversal of impairments to goodwill, on the basis that the goodwill could have been replaced by internally generated goodwill, which cannot be recognised under IFRS.

Reversals of Impairments under the Revaluation Method

Reversals of impairments are accounted for differently if the reporting entity employed the revaluation method of accounting for non‐current assets. The basic principle is that the reversal will increase the revaluation reserve; however, any impairment previously recognised in profit or loss since the revaluation reserve was eliminated must first be reversed before a revaluation reserve is created again.

Insurance and Other Recoveries

Impairments of tangible non‐current assets resulting from natural or other damages, such as from floods or windstorms, may be insured. IAS 16, Property, Plant and Equipment, holds that when property is damaged or lost, impairments and claims for reimbursements should be accounted for separately (i.e., not netted for financial reporting purposes). Impairments are to be accounted for per IAS 36 as discussed above; disposals (of damaged or otherwise impaired assets) should be accounted for consistent with guidance in IAS 16. Compensation from third parties, which are gain contingencies, should be recognised as profit only when the funds become receivable. The cost of replacement items or of restored items is determined in accordance with IAS 16.

Disclosure Requirements

For each class of property, plant and equipment, the amount of impairment losses recognised in profit or loss for each period being reported upon must be stated, with an indication of where in the statement of comprehensive income it has been presented. For each class of asset, the amount of any reversals of previously recognised impairment must also be stipulated, again with an identification of where in the statement of comprehensive income that this has been presented. If any impairment losses were recognised in other comprehensive income and in revaluation surplus in equity (i.e., as a reversal of a previously recognised upward revaluation), this must be disclosed. Finally, any reversals of impairment losses that were recognised in other comprehensive income and in equity must be stated.

If the reporting entity is reporting financial information by segment (in accordance with IFRS 8, Operating Segments, as discussed in more detail in Chapter 28), the amounts of impairments and of reversals of impairments, recognised in profit or loss and in other comprehensive income during the year for each reportable segment, must also be stated. Note that the segment disclosures pertaining to impairments need not be categorised by asset class, and the location of the charge or credit in the statement of profit or loss need not be stated (but will be understood from the disclosures relating to the primary financial statements themselves).

IAS 36 further provides that if an impairment loss for an individual asset or group of assets categorised as a cash‐generating unit is either recognised or reversed during the period, in an amount that is material to the financial statements taken as a whole, disclosures should be made of the following:

1. The events or circumstances that caused the loss or recovery of loss;
2. The amount of the impairment loss recognised or reversed;
3. If for an individual asset, the nature of the asset and the reportable segment to which it belongs, as defined under IFRS 8;
4. If for a cash‐generating unit, a description of that unit (e.g., defined as a product line, a plant, geographical area, etc.), the amount of impairment recognised or reversed by class of asset and by reportable segment based on the primary format, and, if the unit's composition has changed since the previous estimate of the unit's recoverable amount, a description of the reasons for such changes;
5. Whether fair value less costs to sell or value in use was employed to compute the recoverable amount;
6. If recoverable amount is fair value less costs to sell, the basis used to determine it (e.g., whether by reference to active market prices or otherwise) and the fair value hierarchy in which the fair value measure falls, which additional disclosure for Levels 2 and 3, including the valuation method and key assumptions used; and
7. If the recoverable amount is value in use, the discount rate(s) used in the current and prior period's estimate.

Furthermore, when impairments recognised or reversed in the current period are material in the aggregate, the reporting entity should provide a description of the main classes of assets affected by impairment losses or reversals of losses, as well as the main events and circumstances that caused recognition of losses or reversals. This information is not required to the extent that the disclosures above are given for individual assets or cash‐generating units.

Held‐for‐sale Classification

The reporting entity would classify a non‐current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The criteria are as follows:

1. For an asset or disposal group to be classified as held for sale the asset (or asset group) must be available for immediate sale in its present condition and its sale must be highly probable.
2. In addition, the asset (or disposal group) must be currently being marketed actively at a price that is reasonable in relation to its current fair value.
3. The sale should be completed, or expected to be so, within 12 months from the date of the classification. IFRS 5 does, however, allow for some exceptions to this principle, which are discussed below.
4. The actions required to complete the planned sale will have been made, and it is unlikely that the plan will be significantly changed.
5. For the sale to be highly probable, management must be committed to selling the asset and must be actively looking for a buyer.
6. In the case that the sale may not be completed within 12 months, the asset could still be classified as held for sale if the delay is caused by events beyond the entity's control and the entity remains committed to selling the asset.

Extension of the period beyond 12 months is allowable in the following situations:

1. The reporting entity has committed itself to sell an asset, and it expects that others may impose conditions on the transfer of the asset that could not be completed until after a firm purchase commitment has been made, and a firm purchase commitment is highly probable within a year.
2. A firm purchase commitment is made but a buyer unexpectedly imposes conditions on the transfer of the asset held for sale; timely actions are being taken to respond to the conditions, and a favourable resolution is anticipated.
3. During the one‐year period, unforeseen circumstances arise that were considered unlikely, and the asset is not sold. Necessary action to respond to the change in circumstances should be taken. The asset should be actively marketed at a reasonable price and the other criteria set out for the asset to be classified as held for sale should have been met.

Occasionally companies acquire non‐current assets exclusively with a view to disposal. In these cases, the non‐current asset will be classified as held for sale at the date of the acquisition only if it is anticipated that it will be sold within the one‐year period and it is highly probably that the held‐for‐sale criteria will be met within a short period of the acquisition date. This period normally will be no more than three months. Exchanges of non‐current assets between companies can be treated as held for sale when such an exchange has commercial substance in accordance with IAS 16.

If the criteria for classifying a non‐current asset as held for sale occur after the reporting date, the non‐current asset should not be presented as held for sale. Nonetheless, certain information should be disclosed about these non‐current assets.

Operations that are expected to be wound down or abandoned do not meet the definition of held for sale. However, a disposal group that is to be abandoned may meet the definition of a discontinued activity. Abandonment means that the non‐current asset (disposal group) will be used to the end of its economic life, or the non‐current asset (disposal group) will be closed rather than sold. The reasoning behind this is that the carrying amount of the non‐current asset will be recovered principally through continued usage. A non‐current asset that has been temporarily taken out of use or service cannot be classified as being abandoned.

Measurement of Non‐Current Assets Held for Sale

Assets that are classified as being held for disposal are measured differently and presented separately from other non‐current assets. In accordance with IFRS 5, the following general principles would apply in measuring non‐current assets that are held for sale:

1. Just before an asset is initially classified as held for sale, it should be measured in accordance with the applicable IFRS.
2. When non‐current assets or disposal groups are classified as held for sale, they are measured at the lower of the carrying amount and fair value less costs to sell.
3. When the sale is expected to occur in more than a year's time, the entity should measure the cost to sell at its present value. Any increase in the present value of the cost to sell that arises from the passage of time should be shown in profit and loss as finance cost.
4. Any impairment loss is recognised in profit or loss on any initial or subsequent write‐down of the asset or disposal group to fair value less cost to sell.
5. Any subsequent increases in fair value less cost to sell of an asset can be recognised in profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognised in accordance with IFRS 5 (or previously in accordance with IAS 36).
6. Any impairment loss recognised for a disposal group should be applied in the order set out in IAS 36.
7. Non‐current assets or disposal groups classified as held for sale should not be depreciated.

The standard stipulates that, for assets not previously revalued (under IAS 16), any recorded decrease in carrying amount (to fair value less cost to sell or value in use) would be an impairment loss taken as a charge against income. Subsequent changes in fair value would also be recognised, but not increased in excess of impairment losses previously recognised.

For an asset that is carried at a revalued amount (as permitted under IAS 16), revaluation under that standard will have to be effected immediately before it is reclassified as held for sale under IFRS 5, with any impairment loss recognised in accordance with IAS 16 and IAS 36. Subsequent increases or decreases in estimated fair value less costs to sell the asset will be recognised in profit or loss.

A disposal group, as defined under IFRS 5, may include some assets, which are accounted for by the revaluation model. For such disposal groups subsequent increases in fair value are to be recognised, but only to the extent that the carrying amounts of the non‐current assets in the group, after the increase has been allocated, do not exceed their respective fair values less cost to sell. The increase recognised would continue to be treated as a revaluation increase under IAS 16.

Finally, IFRS 5 states that non‐current assets classified as held for sale are not to be depreciated. The constraints on classifying an asset as held for sale are, in part, intended to prevent entities from employing such reclassification as a means of avoiding depreciation. Even after classification as held for sale, however, interest and other costs associated with the asset are still recognised as expenses as required under IFRS.

Measurement of non‐current assets held for distribution to owners. Assets that are classified as being held for distribution to owners are measured differently and presented separately from other non‐current assets. An entity shall measure a non‐current asset (or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair value less costs to distribute.

Change of Plans

If the asset held for sale or held for distribution to owners is not later disposed of or distributed, it is to be reclassified to the operating asset category it is properly assignable to. The amount to be initially recognised upon such reclassification would be the lower of:

1. The asset's carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any depreciation or amortisation that would have been recognised during the interim had the asset (disposal group) not been classified as held for sale; and
2. The recoverable amount at the date of the subsequent decision not to sell.

If the asset is part of a cash‐generating unit (as defined under IAS 36), its recoverable amount will be defined as the carrying amount that would have been recognised after the allocation of any impairment loss incurred from that same cash‐generating unit.

Under the foregoing circumstance, the reporting entity would include, as part of income from continuing operations in the period in which the criteria for classification as held for sale or held for distribution to owners are no longer met, any required adjustment to the carrying amount of a non‐current asset that ceases to be classified as held for sale or held for distribution to owners. That adjustment would be presented in income from continuing operations. It is not an adjustment to prior period results of operations under any circumstances.

If an individual asset or liability is removed from a disposal group classified as held for sale or held for distribution to owners, the remaining assets and liabilities of the disposal group still to be sold will continue to be measured as a group only if the group meets the criteria for categorisation as held for sale or held for distribution to owners. In other circumstances, the remaining non‐current assets of the group that individually meet the criteria to be classified as held for sale or held for distribution to owners will need to be measured individually at the lower of their carrying amounts or fair values less costs to sell at that date.

If an entity reclassifies an asset (or disposal group) directly from being held for sale to being held for distribution to owners, or directly from being held for distribution to owners to being held for sale, then the change in classification is considered a continuation of the original plan of disposal. The guidance above for a change will not apply. The entity shall, however, apply the classification, presentation and measurement requirements in IFRS 5 that are applicable to the changed method of disposal. Any reduction or increase in the fair value less costs to sell/costs to distribute of the non‐current asset (or disposal group) shall be recognised by following the normal measurement guidance for non‐current assets held for sale or held for distribution to owners. The date of the original classification will not be changed. This does not preclude the application of the conditions for an extension of the period required to complete a sale or a distribution to owners.

Presentation and Disclosure

IFRS 5 specifies that non‐current assets classified as held for sale and the assets of a disposal group classified as held for sale must be presented separately from other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale are also presented separately from other liabilities in the statement of financial position.

Several disclosures are required, including a description of the non‐current assets of a disposal group, a description of the facts and circumstances of the sale, and the expected manner and timing of that disposal. Any gain or loss recognised for impairment or any subsequent increase in the fair value less costs to sell should also be shown in the applicable segment in which the non‐current assets or disposal group is presented in accordance with IFRS 8 (Chapter 28).

The disclosure requirements in other IFRS do not apply to such assets (or disposal groups) unless those IFRS require:

1. Specific disclosures in respect of non‐current assets (or disposal groups) classified as held for sale or discontinued operations; or
2. Disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and such disclosures are not already provided in the other notes to the financial statements.

IFRS 5 also provides that where additional disclosures about non‐current assets (or disposal groups) classified as held for sale or discontinued operations are necessary to comply with the general requirements of IAS 1, then such disclosures must still be made.

Presentation and Disclosure

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. A discontinued operation is a part of an entity that has either been disposed of or is classified as held for sale and meets the following requirements:

1. Represents a separate major line of business or geographical area of operations;
2. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
3. Is a subsidiary acquired exclusively with a view to resale.

An entity should present in the statement of comprehensive income a single amount comprising the total of:

1. The after‐tax profit or loss of discontinued operations; and
2. The after‐tax gain or loss recognised on the measurement to fair value less costs to sell (or on the disposal) of the assets or disposal groups classified as discontinued operations.

IFRS 5 requires detailed disclosure of revenue, expenses, pre‐tax profit or loss, and the related income tax expense, either in the notes or on the face of the statement of comprehensive income. If this information is presented on the face of the statement of comprehensive income (or separate statement of profit or loss if the two‐statement alternative is used), the information should be separately disclosed from information relating to continuing operations. Regarding the presentation in the statement of cash flows, the net cash flows attributable to the operating, investing and financing activities of the discontinued operation should be shown separately on the face of the statement or disclosed in the notes.

Any disclosures should cover both the current and all prior periods that have been shown in the financial statements. Retrospective classification as a discontinued operation, where the criteria are met after the statement of financial position date, is prohibited by IFRS. In addition, adjustments made in the current accounting period to amounts that have previously been disclosed as discontinued operations from prior periods must be separately disclosed. If an entity ceases to classify a component as held for sale, the results of that element must be reclassified and included in the results from continuing operations.