Chapter 10 – Non-current assets held for sale Page 126
Illustration 2
Assume the facts are as in Illustration 1, except that on classification as held for sale, the fair value was estimated at CU80,000 and the costs to sell at CU3,000.
The asset was sold on 30 June 2007 for CU77,000. a Upon re-classification as held for sale on 1 January 2007:
i The asset is removed from its PPE category within non-current assets into the held for sale category
ii The fair value less costs to sell of the held for sale asset is CU77,000 CU80,000 – CU3,000 = CU77,000. This is higher than the asset’s current
carrying amount calculated in Illustration 1 as being CU73,000, so the asset remains measured at CU73,000
iii The gain is not recognised at this time, since any gain should not be anticipated at the point of reclassification.
b Upon sale on 30 June 2007, a profit of CU4,000 is recognised in profit or loss for the period Proceeds of CU77,000 received less current carrying amount of
CU73,000
Where an entity adopts the revaluation model for the measurement of assets, any asset classified as held for sale should be revalued to fair value immediately prior to the
reclassification. Upon reclassification the costs to sell are deducted and recognised as an impairment loss as part of profit or loss for the period.
Illustration 3
An entity carries its land at fair value. One piece of land had a carrying amount of CU60,000. On 1 January 2007 the asset was classified as held for sale, its fair value being estimated at
CU70,000 and the costs to sell at CU2,000. The asset was sold on 30 June 2007 for CU67,000.
On 1 January 2007 the land is revalued to CU70,000. The gain of CU10,000 is recognised in other comprehensive income as a revaluation surplus. The land is then classified as held for
sale and the costs to sell of CU2,000 are recognised in profit or loss for the period, as an impairment loss. The carrying amount is now CU68,000.
Upon its ultimate sale a further loss of CU1,000 is recognised as a loss on sale as the sale proceeds are less than the carrying amount. The revaluation surplus is now realised and it
will be transferred to retained earnings.
4.1 Changes of plan
If a non-current asset classified as held for sale no longer meets the specific recognition requirements for such classification then it should be reclassified as a non-current asset.
Should reclassification be necessary, the asset should then be measured at the lower of the carrying amount that it would have been recognised at had it not been reclassified and its
recoverable amount. The carrying amount that the asset would have been recognised at is its carrying amount at the date of the original classification as held for sale was made, adjusted
for depreciation or valuations that would otherwise have taken place. Recoverable amount is determined at the date the decision not to sell is made.
Chapter 10 – Non-current assets held for sale Page 127
It is possible for individual assets or liabilities within a disposal group to no longer be considered to be part of that group, in which case they should be reclassified. Such an event
will not lead to the remaining part of the disposal group having to be reclassified provided that it continues to meet the recognition criteria.
5 Presentation and Disclosure
An asset classified as held for sale should be presented in the statement of financial position separately from other assets. Typically a separate heading ‘non-current assets –
held for sale’ would be appropriate.
Where a disposal group is held for sale, the assets and liabilities within it should also be separately identified. Such assets and liabilities should not be netted off for disclosure
purposes and presented as a single line item. The major classes of assets and liabilities of the disposal group should be presented separately in the statement of financial position or in
the notes. This disclosure is not, however, required where the disposal group was classified as held for sale when it was newly acquired.
The separate presentation is required when the assets are classified as held for sale. It is therefore not appropriate to restate prior period figures in the statement of financial position
to reflect the current classification.
An entity should also provide a description of any non-current assets, or a disposal group, classified as held for sale or sold including details of any sale and expected time scales for
disposal. If a sale has taken place within the reporting period, then the gain or loss on disposal should be separately identified either in the statement of comprehensive income or
in the notes.
Where held for sale assets have been included within a segment as part of the segmental analysis presented in accordance with IFRS 8 Operating segments, this information should
be highlighted.
6 Chapter Review
This chapter has been concerned with the accounting requirements for non-current assets and disposal groups that have been identified as being held for sale.
The chapter has covered the: scope of IFRS 5 in relation to held for sale assets;
criteria for assets to be classified as held for sale; appropriate measurement basis; and
disclosure requirements in relation to held for sale assets.
Chapter 10 – Non-current assets held for sale Page 128
7 Self Test Questions
Chapter 10
1. Are the following statements about the requirements of IFRS5 Non-current
assets held for sale and discontinued operations true or false? 1
An asset that meets the criteria for classification as held for sale after the end of the reporting period but before the authorisation of the
financial statements should be measured in the statement of financial position at the lower of carrying amount and fair value less costs to
sell.
2 To be classified as an asset held for sale, the sale must be expected
to be completed within 12 months from the end of the financial year. Statement 1
Statement 2
A
False False
B False
True
C
True False
D
True True
2. The Mirror Company classified a non-current asset accounted for under the
cost model as held for sale on 31 December 20X6. Because no offers were received at an acceptable price, Mirror decided on 1 July 20X7 not to sell the
asset, but to continue to use it.
In accordance with IFRS5 Non-current assets held for sale and discontinued operations, the asset should be measured on 1 July 20X7 at
select one answer
A
the lower of its carrying amount and its recoverable amount
B the higher of its carrying amount and its recoverable amount
C
the lower of its carrying amount on the basis that it had never been classified as held for sale and its recoverable amount
D the higher of its carrying amount on the basis that it had never been
classified as held for sale and its recoverable amount
3. To which TWO of the following types of asset do the measurement provisions
of IFRS5 Non-current assets held for sale and discontinued operations apply?
A
Financial assets
B Intangible development assets
C
Leasehold buildings
D Deferred tax assets
Chapter 10 – Non-current assets held for sale Page 129
4. In accordance with IFRS5 Non-current assets held for sale and discontinued
operations, an asset should be classified as held for sale when which TWO of the following criteria are satisfied?
A
The sale is highly probable
B The asset has a readily observable market value
C
The sale is expected to be completed within 3 months of the end of the reporting period
D The asset is available for immediate sale in its present condition
5. The directors of The Rangimoe Company decided at a board meeting on 28
February 20X7 that a major machine tool should be sold. Trade magazines reported recent transactions in non-current assets of a similar age at
CU50,000, but the board decided that the asking price should be CU75,000. The board also decided that as a programme of repairs to the tool needed to
be carried out, an agent should not be contracted with for the sale of the item until the repairs were completed, which was on 31 May 20X7.
On 31 July 20X7 the board agreed to reduce the asking price to CU50,000. A deal was agreed with a buyer on 31 August 20X7 and completion of the sale
took place on 30 November 20X7.
In accordance with IFRS5 Non-current assets held for sale and discontinued operations, the asset should be classified as held for sale on
A
28 February 20X7
B 31 May 20X7
C
31 July 20X7
D 31 August 20X7
6. The Delap Company accounts for non-current assets using the cost model.
On 25 April 20X7 Delap classified a non-current asset as held for sale in accordance with IFRS5 Non-current assets held for sale and discontinued
operations. At that date the assets carrying amount was CU32,000, its fair value was estimated at CU22,000 and the costs to sell at CU3,200.
On 15 May 20X7 the asset was sold for net proceeds of CU18,400. In accordance with IFRS5, what amount should be included as an impairment
loss in Delaps statement of comprehensive income for the year ended 30 June 20X7?
A CU13,600
B CU13,200
C
Nil
D CU10,000
Chapter 10 – Non-current assets held for sale Page 130
7. The Alethe Company accounts for non-current assets using the cost model.
On 30 October 20X7 Alethe classified a non-current asset as held for sale in accordance with IFRS5 Non-current assets held for sale and discontinued
operations. At that date the assets carrying amount was CU15,000, its fair value was estimated at CU11,000 and the costs to sell at CU1,500.
On 20 November 20X7 the asset was sold for net proceeds of CU9,200. In accordance with IFRS5, what amount should be included as a loss on
disposal in Alethes statement of comprehensive income for the year ended 31 December 20X7?
A Nil
B CU4,300
C CU5,800
D CU300
8. The Coral Company accounts for non-current assets using the cost model.
On 20 July 20X7 Coral classified a non-current asset as held for sale in accordance with IFRS5 Non-current assets held for sale and discontinued
operations. At that date the assets carrying amount was CU14,500, its fair value was estimated at CU21,500 and the costs to sell at CU1,450.
The asset was sold on 18 October 20X7 for CU21,200. In accordance with IFRS5, at what amount should the asset be stated in
Corals statement of financial position at 30 September 20X7?
A CU20,050
B CU21,500
C CU21,200
D CU14,500
Chapter 10 – Non-current assets held for sale Page 131
9. The Verbena Company accounts for non-current assets using the revaluation
model. On 30 October 20X7 Verbena classified a freehold property as held for sale in
accordance with IFRS5 Non-current assets held for sale and discontinued operations. At that date the propertys carrying amount was CU22,000 and
the balance on the revaluation reserve was CU12,000. At that date its fair value was estimated at CU29,000 and the costs to sell at CU2,200.
The property was sold in 20X8. In accordance with IFRS5, at what amount should the revaluation reserve be
stated at 31 December 20X7?
A Nil
B CU12,000
C CU16,800
D CU19,000
10. The Verba Company accounts for non-current assets using the revaluation
model. On 30 June 20X7 Verba classified a freehold property as held for sale in
accordance with IFRS5 Non-current assets held for sale and discontinued operations. At that date the propertys carrying amount was CU290,000 and
the balance on the revaluation reserve was CU20,000.
At that date its fair value was estimated at CU330,000 and the costs to sell at CU20,000. At 31 December 20X7 the propertys fair value was estimated at
CU325,000 and the costs to sell at CU25,000.
In accordance with IFRS5 the asset should be carried in Verbas statement of financial position at 31 December 20X7 at
A CU310,000
B CU330,000
C CU300,000
D CU325,000
Chapter 11 – Investment Property Page 133
Chapter 11 INVESTMENT PROPERTY
1 Business Context
Investment properties are properties that are held by their owners for their investment potential. This potential may be realised either through the receipt of rental income or by
continuing to hold the properties for their capital appreciation. Investment properties are not held by an entity for use in the production or supply of goods and services. The risks and
returns associated with an investment property are different to those that result from an entity using the property for its own occupation.
While rental income presents few problems, the issue of capital gains raises both commercial and accounting issues. Gains can be viewed as either a year on year increase in the
property’s value or as one total gain over the period of ownership.
Since an investment property is an investment of the entity it is not necessarily appropriate to recognise the consumption of the asset through depreciation charges each period on a
systematic basis. It is generally the current value of investment properties which is of prime importance and therefore recognising such properties in the financial statements at their
market value may be seen as more appropriate.
2 Chapter Objectives
This chapter deals with IAS 40 Investment properties. The key issue is the identification of properties which should be treated as investment properties. Other important areas include
the recognition and measurement of investment properties at different stages i initial recognition, ii whilst held for rental purposes or capital appreciation and iii on disposal.
Disclosure issues are also relevant.
On completion of this chapter you should be able to: demonstrate a knowledge of the types of properties that fall within the scope of
IAS 40; demonstrate an understanding of, and be able to apply, recognition and
measurement criteria to investment properties; demonstrate the correct treatment on the change in use of an investment property;
demonstrate an understanding of and be able to apply, the correct treatment on the disposal of an investment property;
demonstrate a knowledge of the disclosure requirements of IAS 40; and apply IAS 40 knowledge and understanding in particular circumstances through basic
calculations.
