Ind AS 105:Non-Current Assets held for sale and Discontinued Operations

Out of Scope

  1. Deferred tax assets(Ind AS 12);
  2. Assets arising from employee benefits(Ind AS 19);
  3. Financial assets(Ind As 109);
  4. Non-current assets that are measured at fair value less costs(Ind AS 41);
  5. Contractual rights under insurance contracts(Ind AS 104) 

Classification of non-current assets (or disposal groups) as held for sale or as held for distribution to owners

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

Two requirements before classify as held for sale

1.     Available for immediate sale in its present condition

Assets must be available for immediate sale in its present location subject only to terms that are usual and customary for sales of such assets (or disposal groups).

However, if assets continue to be vital for entity operations or being refurbished to enhance value, this can’t be classified as assets held for sale if an entity intends to sell in the distant future. For example:

(a) The company plans to sell the assets but after completion of order, then not classified as assets held for sale until all order is executed.

(b) The time consumed if head quarter needs to be vacated is usual and customary so classified as assets held for sale.

(c) If the company renovates assets before sale, such assets are not classified as assets for sale.

2.      Sale must be highly probable

  • The appropriate level of management must be committed to a plan to sell the asset (or disposal group);
  • Active programme to locate a buyer and complete the plan must have been initiated;
  • Asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value;
  • Sale should be expected to qualify for recognition as a completed sale within one year from the date of classification(exceptions discussed later);
  • it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Important

Loss of Control in Subsidiary

An entity that is committed to a sale plan involving loss of control of a subsidiary shall classify all the assets and liabilities of that subsidiary as held for sale when the criteria are met, regardless of whether the entity will retain a non-controlling interest in its former subsidiary after the sale

Exception of sale within one year

  • If the delay is caused by events or circumstances beyond the entity’s control;
  • Sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group)

In the above cases, an entity continues to classified assets (or disposal group) held for sale.

Sale transactions include exchanges

Sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance in accordance with Ind AS 16, Property, Plant and Equipment.

Assets exclusively with a view to its subsequent disposal

It shall classify the non-current asset (or disposal group) as held for sale at the acquisition date and that are not met at that date other than the requirement of 1 year, will be met within a short period the acquisition (usually within three months).

Criteria met after the reporting period

An entity shall not classify a non-current asset (or disposal group) as held for sale after reporting period but before authorize i.e. After signing by auditors but before member authorize.

However, when those criteria are met after the reporting period but before the approval of the financial statements for the issue, the entity shall disclose the information.

Classified as held for distribution

A non-current asset (or disposal group) is classified as held for distribution to owners after satisfying requirements as discussed before.

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. This is because its carrying amount will be recovered principally through continuing use.

However, if the disposal group to be abandoned meets the criteria as per Ind AS 105, then disclosure regarding disposal group should be presented.

Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold.

Measurement of non-current assets (or disposal groups) classified as held for sale held for sale

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the time of initial time

  • The lower of carrying amount;
  • Fair value less costs to sell.

If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale, will result in the asset (or disposal group) being measured on initial recognition at the lower of its carrying amount had it not been so classified (for example, cost) and fair value less costs to sell. Hence, if the asset (or disposal group) is acquired as part of a business combination, it shall be measured at fair value less costs to sell.

Important Points:

  • When the sale is expected to occur beyond one year due to usual and customary, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing cost.
  • On subsequent remeasurement of a disposal group, the carrying amounts of any assets and liabilities that are not within the scope of the measurement requirements of this Ind AS, but are included in a disposal group classified as held for sale, shall be remeasured in accordance with applicable Ind ASs before the fair value less costs to sell of the disposal group is remeasured.
  • An entity shall not depreciate (or amortise) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale.
  • Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be recognised.

Recognition of impairment losses and reversals

An entity shall recognise an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell, (i.e. Comparison between carrying amount and fair value less cost to sell.)

An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognised either in accordance with this Ind AS or previously in accordance with Ind AS 36, Impairment of Assets.

An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of a disposal group:

(a) to the extent that it has not been recognised in non-current assets and liabilities scoped out from this standards; but

(b) not in excess of the cumulative impairment loss that has been recognised, either in accordance with this Ind AS or previously in accordance with Ind AS 36, on the non-current assets that are within the scope of the measurement requirements of this Ind AS.

* Impairment loss:

(a) First,allocate from goodwill;

(b) then to other assets of disposal group pro rata based on carrying Amount.

Changes of plan to sale or distribution to owners

If an entity has classified an asset (or disposal group) as held for sale or as held for distribution to owners, but the criteria are no longer met, the entity shall cease to classify the asset (or disposal group) as held for sale or held for distribution to owners to be measured at lower:

  • Its carrying amount before the asset (or disposal group) was classified as held for sale or as held for distribution to owners, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset (or disposal group) not been classified as held for sale or as held for distribution to owners, and
  • Its recoverable amount at the date of the subsequent decision not to sell or distribute

Imp: The entity shall include any required adjustment to the carrying amount of a noncurrent asset that ceases to be classified as held for sale or as held for distribution to owners in profit or loss from continuing operations in the period

Financial statements for the periods since classification as held for sale or as held for distribution to owners shall be amended accordingly if the disposal group or noncurrent asset that ceases to be classified as held for sale or as held for distribution to owners is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate.

If an entity removes an individual asset or liability from a disposal group classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the group meets the criteria Otherwise

  • the remaining non-current assets of the group that individually meet the criteria to be classified as held for sale (or as held for distribution to owners) shall be measured individually at the lower of their carrying amounts and fair values less costs to sell (or costs to distribute) at that date.
  • Any non-current assets that do not meet the criteria for held for sale shall cease to be classified as held for sale.

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

(a) Represents a separate major line of business or geographical area of operations,

(b) Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or

(c) Is a subsidiary acquired exclusively with a view to resale

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. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.

Presentation in P&L

A single amount in the statement of profit and loss comprising the total of

  • The post-tax profit or loss of discontinued operations and
  • The post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation.
  • an analysis of the single amount in (a) into:

(i) the revenue, expenses and pre-tax profit or loss of discontinued operations;

(ii) the related income tax expense as required by paragraph 81(h) of Ind AS 12; and

(iii) the gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation; and.

The analysis may be presented in the notes or in the statement of profit and loss. If it is presented in the statement of profit and loss it shall be presented in a section identified as relating to discontinued operations, ie separately from continuing operations. The analysis is not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition.

the amount of income from continuing operations and discontinued operations attributable to owners of the parent. These disclosures may be presented either in the notes or in the statement of profit and loss.

Presentation in Cash flow

The net cash flows attributable to the operating, investing and financing activities of discontinued operations. These disclosures may be presented either in the notes or in the financial statements. These disclosures are not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition.

Presentation of Prior Period Adjustments

An entity shall re-present the disclosures for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the end of the reporting period for the latest period presented.

Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be classified separately in discontinued operations. The nature and

amount of such adjustments shall be disclosed. Examples of circumstances in which these adjustments may arise include the following:

(a) the resolution of uncertainties that arise from the terms of the disposal transaction, such as the resolution of purchase price adjustments and indemnification issues with the purchaser.

(b) the resolution of uncertainties that arise from and are directly related to the operations of the component before its disposal, such as environmental and product warranty obligations retained by the seller.

(c) the settlement of employee benefit plan obligations provided that the settlement is directly related to the disposal transaction.

Presentation in case of plan for sale

If an entity ceases to classify a component of an entity as held for sale, the results of operations of the component previously presented in discontinued operations shall be reclassified and included in income from continuing operations for all periods presented. The amounts for prior periods shall be described as having been re-presented

Presentation in case of loss of Subsidiary

An entity that is committed to a sale plan involving loss of control of a subsidiary shall disclose the information when the subsidiary is a disposal group that meets the definition of a discontinued operation.

 Presentation of a non-current asset or disposal group classified as held for sale

  • An entity shall present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the balance sheet.
  • The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities in the balance sheet. Those assets and liabilities shall not be offset and presented as a single amount.
  • The major classes of assets and liabilities classified as held for sale shall be separately disclosed either in the balance sheet or in the notes, except If the disposal group is a newly acquired subsidiary that meets the criteria to be classified as held for sale on acquisition, disclosure of the major classes of assets and liabilities is not required.
  • An entity shall present separately any cumulative income or expense recognised in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale.
  • An entity shall not reclassify or re-present amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held for sale in the balance sheets for prior periods to reflect the classification in the balance sheet for the latest period presented.

Additional Disclosures

An entity shall disclose the following information in the notes in the period in which a non-current asset (or disposal group) has been either classified as held for sale or sold:

(a) a description of the non-current asset (or disposal group);

(b) a description of the facts and circumstances of the sale, or leading to the expected disposal, and the expected manner and timing of that disposal;

(c) the gain or loss recognised in and, if not separately presented in the statement of profit and loss, the caption in the statement of profit and loss that includes that gain or loss;

(d) if applicable, the reportable segment in which the non-current asset(or disposal group) is presented in accordance with Ind AS 108, Operating Segments.

(e) description of the facts and circumstances leading to the decision and the effect of the decision on the results of operations for the period and any prior periods presented

Priyansh Minocha

Priyansh Minocha is C.E.O and Director at Amonest India Private Limited and Founder at Casolutionsglobal

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