IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations
IFRS-5 Standard is being developed, revised and adopted by the IASB to establish a framework for recognising and measuring the income of entities that acquire other entities. It is being developed for application in the financial statements of all entities.
Non-current assets held for sale are non-current assets that a company intends to dispose of by sale or another transaction within 12 months. These assets are measured at the lower of their carrying amount and fair value less costs to sell.
Scope
This standard specifies requirements for the recognition of income arising from the sale of non-current assets or the recognition of income from discontinued operations.
The objective of IASB IFRS 5 is to establish a framework in which entities must provide information on whether they recognise and measure the income from the sale of non-current assets or discontinue operations.
What is the purpose of IASB IFRS 5?
The purpose of IASB IFRS 5 is to specify requirements to enable users to determine, from the consolidated financial statements of an entity, whether that entity recognizes and measures the income arising from the sale of non-current assets.
In general, assets held for sale are not depreciated, are valued at the lower of carrying value or fair value minus expenses to sell, and are disclosed separately in the statement of financial status. Discontinued activities and dispositions of non-current assets necessitate further disclosures.
This standard defines “income arising from the sale of non-current assets” as any income recognised from the sale of non-current assets. The income is recognised in the financial statements and is allocated to the respective periods to the extent the non-current assets are sold or otherwise disposed of.
Difference between “recognise and measure” and “recognise”
“Recognise and measure” is used to refer to the requirement that the entity measure and report the income arising from the sale of non-current assets on its financial statements. Recognise” is used to refer to the requirement to recognise income arising from the sale of non-current assets on its financial statements.
Disposal group concept
A ‘disposal group’ is a collection of assets that may be linked with liabilities that a business seeks to sell in a single transaction. The measurement basis required for non-current assets categorised as held for sale is applied to the group as a whole, and any resulting impairment loss is deducted from the carrying value of the disposal group’s non-current assets in the order specified by IAS 36.
Assets that must be classified as non-current assets
Non-current assets include those used to manufacture products sold to customers in the normal course of operations or those acquired for future use. Assets used in the manufacturing process that will eventually become obsolete, such as raw materials and plant equipment, do not have to be classified as non-current assets unless they meet any of the requirements of IASB IFRS 5.
The rules of IFRS 5 for asset classification, presentation, and measurement also apply to a non-current asset (or disposal group) categorised as retained for distribution to owners.
Benefits of IFRS 5
Transparency: Provides clear and separate information about assets planned for disposal and discontinued operations, enhancing financial statement transparency.
Decision-Making: Helps users of financial statements assess the financial performance of ongoing operations and make informed investment decisions.
Consistency: Promotes global consistency in the accounting treatment of non-current assets held for sale and discontinued operations.
Conclusion
IFRS 5 provides a robust framework for accounting for non-current assets held for sale and discontinued operations. Understanding its key concepts and nuances is essential for preparing and interpreting financial statements that are transparent, informative, and decision-useful.
