Non-monetary government grants GOVERNMENT GRANTS

Chapter 10 – Non-current assets held for sale Page 124 3 Objectives, Scope and Definitions of IFRS 5 IFRS 5 sets out the treatment of assets held for sale and the presentation and disclosure of discontinued operations. It applies to all non-current assets and to groups of assets and associated liabilities which will be disposed of in a single transaction, described as a disposal group. But it does not apply to those assets which are required to be measured in accordance with another international standard. The assets excluded from the scope of IFRS 5 are either those that are already carried at fair value, with changes in their fair value being reported directly in profit or loss, or where there are difficulties in establishing a reliable fair value. Assets which specifically fall outside the scope of IFRS 5 are:  deferred tax assets accounted for in accordance with IAS 12 Income taxes;  employee benefit assets accounted for in accordance with IAS 19 Employee benefits;  financial assets accounted for in accordance with IAS 39 Financial instruments: recognition and measurement;  non-current assets accounted for in accordance with IAS 40 Investment property under the fair value model option;  non-current assets accounted for in accordance with IAS 41 Agriculture at fair value less point-of-sale costs; and  contractual rights as defined in accordance with IFRS 4 Insurance contracts. A disposal group is a related group of assets and their associated liabilities that will be disposed of in a single transaction. The definition includes, but is not limited to, a cash- generating unit of the entity, i.e. a group of assets which generates economic benefits which are largely independent of other activities of the entity, although this is not a requirement. 4 Non-current Assets Held for Sale Non-current assets may be measured, following their initial recognition, at cost or a revalued amount. These measurement bases are relevant when such assets are held for ongoing use in the business. IFRS 5 requires that a non-current asset, or disposal group, should be classified as ‘held for sale’ when the entity does not intend to use the asset as part of its on-going business but instead intends to sell it and recover its carrying amount principally through sale. [IFRS 5.6] To be classified as held for sale, the asset or disposal group should be available for immediate sale. This means that the asset’s current condition should be adequate to be effectively ‘sold as seen’. The likelihood of a sale taking place should also be considered to be highly probable and normally completed within one year of the date of its classification. For a sale to be considered as highly probable there should be a committed plan and management should be actively trying to find a buyer. The commitment by management that a sale will take place should be such that withdrawal from the plan is unlikely. If the entity decides to abandon, rather than sell, such an asset, it will not meet these criteria and should not be classified as held for sale, since any benefit flowing to the entity will be through its continuing use. Where an entity acquires a non-current asset, or disposal group, solely on the basis that it intends to sell it on rather than use it as part of its ongoing activities, it should be classified Chapter 10 – Non-current assets held for sale Page 125 as a held for sale asset at the date of acquisition only where the condition that it be sold within one year of the acquisition date is met. The asset should also meet all other conditions for classification within a short period of its acquisition, which is normally considered to be three months. The conditions for sale should be met before the end of the reporting period if the asset or disposal group is to be recognised as a held for sale asset in the current reporting period. If the conditions are only met after the end of the reporting period, there should be full disclosure in the notes to the financial statements. A non-current asset, or disposal group, that meets the recognition criteria to be classified as held for sale should be measured at the lower of its carrying amount the value at which it is currently recognised in the statement of financial position and the fair value less costs to sell. [IFRS 5.15] Costs to sell are the incremental costs that the entity will incur as a result of the disposal of the assets, for example transport costs and costs to advertise that the asset is available for sale. By applying this measurement basis the entity will recognise any anticipated loss on the sale as an impairment loss as soon as the decision to sell the asset has taken place. Non-current assets classified as held for sale should not be depreciated. On ultimate disposal of an asset classified as held for sale, any difference between its carrying amount and the disposal proceeds is treated as a loss or gain under IAS 16 Property, plant and equipment and not as an adjustment to any impairment previously recognised. Illustration 1 An entity with a 31 December year end acquired an item of PPE on 1 January 2004 at a cost of CU100,000. The asset has an estimated residual value of CU10,000 and a useful life of 10 years. On 1 January 2007 the asset was classified as held for sale. Its fair value was estimated at CU40,000 and the costs to sell at CU2,000. The asset was sold on 30 June 2007 for CU38,000. 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 carrying amount of the asset immediately before the reclassification is CU73,000 CU100,000 – CU100,000 – CU10,000 x 310 iii The fair value less costs to sell of the held for sale asset is CU38,000 CU40,000 less CU2,000 costs. The asset is now measured at this value, which is lower than its carrying amount iv A loss of CU35,000 is recognised as an impairment loss as part of profit or loss for the period, being the difference between the current carrying amount and the fair value less costs to sell i.e. its recoverable amount b Upon sale on 30 June 2007, there is no profit or loss to be recognised. The loss was recognised when the asset was classified as held for sale.