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PFRS 5

PFRS 5 outlines the classification and measurement of non-current assets held for sale and discontinued operations, requiring assets to be available for immediate sale and highly probable to be sold within a year. It details the initial and subsequent measurement of these assets, including impairment losses and gains on disposal, as well as the criteria for reclassification if the held-for-sale status changes. Discontinued operations are defined as components disposed of or held for sale, with specific presentation requirements in financial statements.

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13 views2 pages

PFRS 5

PFRS 5 outlines the classification and measurement of non-current assets held for sale and discontinued operations, requiring assets to be available for immediate sale and highly probable to be sold within a year. It details the initial and subsequent measurement of these assets, including impairment losses and gains on disposal, as well as the criteria for reclassification if the held-for-sale status changes. Discontinued operations are defined as components disposed of or held for sale, with specific presentation requirements in financial statements.

Uploaded by

Christine Claire Lagpacan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PFRS 5: Non-Current Asset Held for Sale and Discontinued Operation

Non-Current Asset Held for Sale


An entity shall classify a noncurrent asset as held for sale or disposal group if the carrying amount will be recovered
principally through a sale transaction rather than through continuing use and subject to the following conditions:
1. The asset must be available for immediate sale in its present condition subject only to terms that are usual
and customary for the sale of such assets
2. Its sale must be highly probable. Sale is highly probable if the following conditions are met:
a. The appropriate level of management must be committed to a plan to sell the asset
b. An active program to locate a buyer and complete the plan must have been initiated
c. The asset must be actively marketed for sale at a price that is reasonable in relation to its current fair
value
d. The sale should be expected to qualify for recognition as a completed sale within one year from the
date of its classification.

➢ Abandoned noncurrent assets shall not be classified as held for sale

Measurement of NCAHFS
Initial Measurement
➢ Lower between the carrying amount of the non-current asset and its fair value less cost to sell.
o If the carrying amount of the NCA is higher than its fair value less cost to sell, an impairment
loss shall be recognized.
o If the carrying amount of the NCA is lower than its fair value less cost to sell, the difference
(gain) shall not be recognized.

Subsequent Measurement (Reporting date)


➢ At fair value.
o If there is a decrease in fair value less cost to sell, an impairment loss shall be recognized in
the profit or loss.
o If there is an increase in fair value less cost to sell, a gain on reversal of impairment is
recognized, but only up to the extent of cumulative impairment losses previously recognized.

Sale of the NCAHFS


➢ The difference between the proceeds from the sale of the NCAHFS and its carrying amount at the date
of sale shall be recognized as a gain/loss on disposal of NCAHFS to be recognized in the profit or loss.

Change in Classification
If the criteria to be recognized as held for sale is no longer applicable, the NCAHFS shall revert to its
original classification.
➢ The reclassified NCA shall be measured at the lower of *:
o Carrying amount before the asset was classified as held for sale adjusted for any
depreciation that would have been recognized if the asset had not been classified as held for
sale.
o Recoverable amount at the date of the subsequent decision not to sell. Recoverable amount
is the lower of Fair Value less cost to sell or the Value in Use)
➢ The difference between the value of the reclassified NCA* and the carrying amount of the NCAHFS
will be recognized as gain/loss on reclassification to be recognized in profit or loss.

Disposal Group
➢ Criteria for classification of a NCAHFS applies equally to that of a disposal group.
➢ Measured the same way as a NCAHFS (lower of carrying amount and fair value less cost to sell) but
instead of individual assets, the measurement is applied as a group
➢ Before initial classification of the disposal group as held for sale, the carrying amounts of all the assets
and liabilities in the group shall be measured/revalued in accordance with applicable PFRS (ie. PFRS 9
for Financial Instruments, PAS 40 for Investment Property, PAS 41 for Agriculture).
➢ The value derived from the initial measurement will be the basis for the determination of impairment loss
upon classification of the disposal group as held for sale. The impairment loss is then allocated to the
assets in the disposal group (Goodwill shall be prioritized), except for Inventory and Financial Assets.
➢ If there is a change in classification, the rules on NCAHFS shall be followed.
Discontinued Operation
Discontinued Operation: a component of an entity that either has been disposed of, or is classified as held for sale,
and
a. Represents a separate major line of business or geographical area of operations
b. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of
operations.
c. Is a subsidiary acquired exclusively with a view for resale

Presentation of Discontinued Operation


➢ Assets and liabilities of a discontinued operation are presented in the same manner as that of Disposal
Group Held for sale
➢ The result of a discontinued operation is presented as a single amount in the income statement comprising
the total of
o The post-tax profit or loss of discontinued operation
o The post-tax gain or loss on the remeasurement to fair value less cost to sell or on the disposal of
assets constituting the discounted operation
- Results of discontinued operations are presented after the profit or loss from continuing operation
- How to compute the income or loss from discontinued operation to be presented in the IS? What are
included in the computation?
o Revenues and expenses attributable to the discontinued operation (remember that this is an
operating unit)
o Impairment loss (FV<CA), which is the difference between FV less cost to sell and the carrying
amount; if gain, ignore.
o Any gain or loss from actual disposal of the discontinued operation (recognized only at the time
of sale)
o Direct cost associated with the discontinuance of operation (termination costs, severance pay,
additional pension costs, relocation expenses, etc)

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