Grants related to assets

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. 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.