A Summary of IFRS 5

“A Summary of IFRS 5: Non-current assets held for sale and
discontinued operations”
 When a company makes the decision to sell an asset or to stop some part of its business, it is making
a decision that affects the future cash flows, profitability and overall financial situation. The users of
the financial statements should be informed about these events.
 Therefore, IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations was issued to
highlight the results from continued operations and to separate them from the results of the ongoing
activities. IFRS 5 came into effect on 1 January 2005.
IFRS 5 FOCUSES ON TWO MAIN AREAS:
 It specifies the accounting treatment for assets (or disposal groups) held for sale, and
 It sets the presentation and disclosure requirements for discontinued operations.
CLASSIFICATION:
A non-current asset must be classified as held for sale if most of its carrying amount is expected
to be recovered via future cash flows from the sale of the asset rather than future cash flows from
use. IFRS 5 will not apply to a non-current asset that is going to be abandoned, as the
carrying amount of an abandoned asset will be recovered through future use.
To classify an asset as held for sale, the asset or disposal group must be available for immediate
sale in its present condition and the sale must be highly probable. IFRS 5 sets out criteria for the
sale to be highly probable:
 Management must be committed to a plan to sell the asset;

 An active program to find a buyer must be initiated;
 The asset must be actively marketed for sale at a price that is reasonable to its current fair
value;
 The sale must be completed within one year from the date of classification;
 Significant changes to be made to the plan must be unlikely.
MEASUREMENT:
Immediately before the asset is classified as held for sale, it should be measured under its
applicable IFRS. Subsequently, after it has been classified as held for sale it must be measured at
the lower of its carrying amount or fair value less costs to sell. However, IFRS 5 lists a few
measurement exceptions:
 Deferred tax assets (IAS 12 Deferred Tax)

 Assets arising from employee benefits (IAS 19 Employee Benefits)
 Financial assets within the scope of IFRS 9 Financial Instruments
 Non-current assets that are accounted for under the fair value model in IAS 40
Investment Property
 Non-current assets that are measured at fair value less costs to sell in accordance with
IAS 41 Agriculture
 Contractual rights under insurance contracts as defined in IFRS 4 Insurance Contracts.
DISCONTINUED OPERATIONS:
A discontinued operation is a component of an entity that has been disposed of or is classified as

held for sale, and:
 Represents a separate major line of business or geographical area of operations,

 Is part of a plan to dispose of, or
 Is a subsidiary acquired solely with a view to resale?
IFRS 5 requires discontinued operations to be presented separately in the financial statements to

keep the readers of the financial statements informed about those operations the entity has
discontinued, and those operations the entity is continuing with in order to generate future profits
and cash flows.
IFRS 5 REQUIRES DISCONTINUED OPERATIONS TO BE PRESENTED AS

FOLLOWS:
I. In the statement of profit and loss and other comprehensive income: a single amount
comprising the total of:
 The post-tax profit or loss of the discontinued operation,

 The post-tax gain or loss recognized on the measurement to fair value less costs to sell,
and
 The post-tax gain or loss recognized on the disposal of assets or the disposal group
making up the discontinued operation.
The analysis of the single amount can be presented in the notes or on the face of the statement of
profit or loss and other comprehensive income.
II. In the statement of cash flows: the net cash flow attributable to the operating, investing and
financing activities of discontinued operations
In the statement of financial position: non-current assets of a disposal group must be presented
separately from other assets. The same applies for liabilities of a disposal group classified as held
for sale.

A Summary of IFRS 5

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“A Summary of IFRS 5: Non-current assets held for sale and

IFRS 5 FOCUSES ON TWO MAIN AREAS:

 Management must be committed to a plan to sell the asset;

 Deferred tax assets (IAS 12 Deferred Tax)

A discontinued operation is a component of an entity that has been disposed of or is classified as

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

IFRS 5 requires discontinued operations to be presented separately in the financial statements to

IFRS 5 REQUIRES DISCONTINUED OPERATIONS TO BE PRESENTED AS

 The post-tax profit or loss of the discontinued operation,

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