IFRS 5 – ACCOUNTING FOR NON CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATION

INTRODUCTION

IFRS 5 provides guidance on the accounting treatment for non-current assets held for sale, ensuring transparency and clear information in financial statements. This standard allows companies to classify assets as held for sale even if they are not in the normal course of business, offering flexibility in financial reporting.

CLASSIFICATION CRITERIA

To be classified as “held for sale”, an asset or disposal group must meet the following criteria:

  •  Its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
  • The asset must be available for immediate sale, and the sale must be highly probable, typically within one year.

MEASUREMENT

Assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Upon classification as held for sale, depreciation ceases.

PRESENTATION

Non-current assets held for sale are presented separately on the Statement of Financial Position. Discontinued operations, which represent a significant component of an entity that has been disposed of or is classified as held for sale, are presented separately in the income statement.

ILLUSTRATION

Green Farm Ltd. classifies a plant as held for sale on March 1, 2024. The plant is immediately available for sale, and management expects the sale to be completed by December 2024. The carrying amount of the plant is GHS 50m, but its fair value less costs to sell is estimated at GHS 45m. Green Farm Ltd. will measure the plant at GHS 45m and recognize an impairment loss of GHS 5m. On the Statement of Financial Position, the plant will be presented as a “Non-Current Asset Held for Sale”, and the impairment loss will be included in the income statement.

CONCLUSION

Proper classification and measurement under IFRS 5 provide transparency and help stakeholders make informed decisions. It ensures that assets are not overvalued and that the financial statements reflect the company’s current strategy. By following IFRS 5 guidelines, companies can accurately report non-current assets held for sale, providing stakeholders with a clear understanding of their financial position.

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