CHAPTER 9 PFRS 5 Non-current assets

Held for Sale and Discontinued Operations

Objectives:
Describe the criteria for
held for sale
classification
State
the
initial and subsequent measurement of held for sale assets

Core Principle
A noncurrent asset is presented in the classified statement of
financial position as current asset only when it qualifies to be classified as
“held for sale” in accordance with PFRS 5.
Scope
PFRS 5 applies to the following non-current assets:
1. Property, plant and equipment
2. Investment property measured under the Cost model 3.
Investments in associate or subsidiary or joint venture
4. Intangible assets
Classification of non-current assets (or disposal groups) as Held for Sale
A non-current asset (or disposal group) is classified as held for sale
or held for distribution to owners if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use
Exception to the one-year requirement
An extension of the period required to complete a sale does not
preclude an asset (or disposal group) from being classified as held for sale
if:
 1
1. the delay is attributable to events or circumstances
beyond the entity’s control
2. there is sufficient evidence that the entity remains
committed to its plan to sell the asset (or disposal
group)
Event after reporting period
If the criteria for classification as held for sale are met after the
reporting period, an entity shall not classify a non-current asset (or
disposal group) as held for sale in those financial statements when issued
Non-current assets that are to be abandoned
- An entity shall not classify as held for sale a non-current asset (or
disposal group) that is to be abandoned since the asset’s
carrying amount will be recovered through continuing use rather
than principally through a sale
- An entity shall not account for a non-current asset that has been
temporarily taken out of use as if it had been abandoned Discontinued
operations
A discontinued operation is a component of an entity that either has been
disposed of or is classified as held for sale, and 1. Represents a major line
of business or geographical area of operations
2. Is part of a single coordinated plan to dispose of a
separate major line of business or geographical area
of operations
3. Is a subsidiary acquired exclusively with a view to
resale.
Component of an entity
A component of an entity comprises operations and cash flows 2
that can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. It can be cash generating unit or
group of cash generating units
FS presentation
Non-current assets held for sale and assets and liabilities of disposal
groups are presented as current assets (current liabilities) but separately
from the other assets and liabilities in the statement of financial position
An entity shall not offset the assets and liabilities of a disposal group

PFRS 6 Exploration for and Evaluation of Mineral Resources

- Exploration for and evaluation of mineral resources is the search for

mineral resources, including minerals, oil, natural gas and similar
non-regenerative resources after the entity has obtained legal rights to
explore in a specific area, as well as the determination of the technical
feasibility and commercial viability of extracting the mineral resource
3
- Exploration and evaluation expenditures are expenditures incurred
by an entity in connection with the exploration for and evaluation
of mineral resources before the technical feasibility and
 commercial viability of extracting a mineral resource are
demonstrable
Accounting for exploration and evaluation expenditures - PFRS 6 permits
entities to develop their own accounting policy for exploration and
evaluation assets which results in relevant and reliable information
based entirely on management’s judgment and without the need to
consider the hierarchy of standards in PAS 8
- This means that the entity may recognize exploration and
evaluation expenditures either as expense or asset depending
on the entity’s own accounting policy
Measurement at recognition
- If the entity opts to capitalize exploration and evaluation
expenditures as assets, it shall measure them at cost
- Subsequent to recognition, the exploration and evaluation assets
shall be measured using the cost model or the revaluation model

PFRS 7 Financial Instruments: Disclosures

PFRS 7 prescribes the disclosure requirements for financial
instruments. The disclosures are broadly classified into the following two main
categories:
a. significance of financial instruments to the entity’s financial position and
performance; and
b. the nature and extent of risks arising from financial instruments to which
the entity is exposed, and how the entity manages those risks. (PFRS

4
7.1)
Significance of financial instruments
Statement of financial position
a. An entity is required to separately disclose the carrying amounts of each
 of the categories of financial assets and financial liabilities under PFRS
9
b. If an entity has reclassified financial assets, it shall disclose the date of
reclassification, an explanation of the change in business model, and
the amount reclassified between categories
c. If an entity has offset financial assets and financial liabilities, it shall
disclose the gross amounts of those assets and liabilities, the amounts
that were set-off, the net amounts presented in the statement of
financial position and a description of the related legal right of set-off
Statement of profit or loss and other comprehensive income a. An entity is
required to disclose separately the income, expense, gains or losses
arising from the different classifications of financial instruments under
PFRS 9
b. The entity shall disclose the fair value of each class of financial assets
and financial liabilities in a way that the fair value can be compared with
the carrying amount
Nature and extent of risks arising from financial instruments a. Credit risk – is
“the risk that one party to a financial instrument will cause a financial loss
for the other party by failing to discharge an obligation.
b. Liquidity risk – is the risk that an entity will encounter difficulty in meeting
obligations associated with financial liabilities
c. Market risk – is “the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices
Market risk comprises the following three types of risk:

5
i. Currency risk – the risk associated with fluctuations in foreign
exchange rates
ii. Interest rate risk –the risk associated with changes in market
 interest rates
iii. Other price risk – the risk associated with fluctuations in market
prices other than those arising from interest rate risk or currency
risk
Qualitative and Quantitative disclosures on risks
- The entity shall provide both qualitative and quantitative disclosures
for each type of the risks required by PFRS 7 to be disclosed

PFRS 8 Operating Segments

- An entity shall disclose information to enable users of its financial

statements to evaluate the nature and financial effects of the business
activities in which it engages and the economic environments in which it
operates.” (PFRS 8
-
An operating segment is a component of an entity:
- that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to
transactions with other components of the same entity)
- whose operating results are regularly reviewed by the entity’s chief 6

operating decision maker to make decisions about resources to be

allocated to the segment and assess its performance
- for which discrete financial information is available
A component of an entity comprises operations and cash flows that can be
clearly distinguished, operationally and for financial reporting purposes, from
the rest of the entity. It can be cash generating unit or group of cash
generating units
Reportable segments
An entity shall report separately information about each operating
segment that:
- Management uses in making decisions about operating matters or
those which results from aggregating two or more of those segments -
Qualify under the quantitative thresholds
Disclosure of Major customer
A major customer is a single external customer providing revenues of
10% or more of an entity’s revenues.

PFRS 9 Financial Instruments

Financial assets
A financial asset is any asset that is:
a. Cash
b. Equity instrument of another entity
c. Contractual right to receive cash or another
financial asset or to exchange financial assets or
financial liabilities with another entity under
conditions that are potentially favorable to the entity
Financial liabilities
A financial liability is any liability that is:
a. a contractual obligation to deliver cash or another financial asset to 7

another entity
b. a contractual obligation to exchange financial assets or financial
liabilities with another entity under conditions that are potentially
 unfavorable to the entity
Initial recognition and Classification
- Financial assets are recognized only when the entity becomes a party
to the contractual provisions of the instrument
Basis of classification
- The entity’s business model for managing the financial assets; and -
The contractual cash flow characteristics of the financial asset Business
models

8
Reclassification
- After initial recognition, financial assets are reclassified only when the
entity changes its business model for managing financial assets -
Reclassification date is the first day of the first reporting period following
the change in business model that results in an entity reclassifying
financial assets
Impairment
- The impairment requirements of PFRS 9 apply equally to debt-type
financial assets that are measured either at amortized cost or at
FVOCI
- Impairment gains or losses on debt instruments measured at FVOCI
are recognized in profit or loss. However, the loss allowance shall be
recognized in other comprehensive income and shall not reduce the
carrying amount of the financial asset in the statement of financial
position
9
 Dividends
- Dividends received from equity securities measured at FVPL or
FVOCI (except share dividend) are recognized as dividend revenue

PFRS 10 Consolidated Financial Statements

Definition of terms (PFRS 10)
a. Parent – an entity that controls one or more entities.
b. Subsidiary – an entity that is controlled by another entity
c. Group – a parent and its subsidiaries
d. Consolidated financial statements – the financial statements of a group in
which the assets, liabilities, equity, income, expenses and cash flows of the
parent and its subsidiaries are presented as those of a single economic entity
Preparation of Consolidated FS
A parent entity is required to present consolidated financial statements,
except when all of the following conditions are met:
a. The parent is a subsidiary of another entity and all its other owners do not
object to the parent not presenting consolidated financial statements b. The
parent’s debt or equity instruments are not traded in a public market (or being
processed for such purpose)
c. The parent’s ultimate or any intermediate parent produces consolidated
financial statements that are available for public use and comply with PFRSs
Elements of Control
Control exists if the investor has all of the following:
a. Power over the investee
b. Exposure, or rights, to variable returns from its involvement with the
investee
c. The ability to use its power over the investee to affect the amount of
the investor’s returns
Elements of Control
 10

Measurement
- Income and expenses of the subsidiary are based on the amounts of
the assets and liabilities recognized in the consolidated financial
statements at the acquisition date

PFRS 11 Joint Arrangements

- PFRS 11 defines a joint arrangement as “an arrangement of which two

or more parties have joint control.”
Types of Joint Arrangements
a. Joint operation – is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets and obligations for the
liabilities, relating to the arrangement. Those parties are called joint
operators

11
b. Joint venture – is a joint arrangement whereby the parties that have joint control of
the arrangement have rights to the net assets of the arrangement. Those parties are
called joint venturers
Accounting for joint operation transactions
- Separate accounting records may or may not be required for the joint operation itself
and financial statements may or may not be prepared for the joint operation. However,
the joint operators may prepare management accounts so that they may assess the
performance of the joint operation

12
For further discussion refer to the link provided: PFRS 8 - Operating
Segments https://www.youtube.com/watch?v=3SqJD7uJNUY
For further discussion refer to the link provided: PFRS 9 – Financial
Instruments https://www.youtube.com/watch?v=8kIKVoNdvoU
For further discussion refer to the link provided: PFRS 11 – Joints
Arrangements https://www.youtube.com/watch?v=sBPTFUX1ozI

13

Conce

By