IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 37 / Noncurrent Assets Heldfor Sale and Discontinued Operations (l FRS 5)

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Practical Insight Aare-Jessin AG , a Swiss entity, discl oses in its financi al stateme nts of December 31 , 2003, that it intends to se ll a subsidiary. The subsi diary wa s deconsolidated and classified as a current as– set using the criteria se t out in lAS I . However, if the subsidiary wa s to be classified as a "d is– posal gro up" und er IFRS 5, then the net assets sho uld be bro ken down and shown se parate ly from othe r assets in the balance sheet in separate categories . (See Case Study 6.) 3. EXTENSION OF PERIOD BEYOND ONE YEAR Situ ation s whe re an ex te nsio n of the period requ ired to complete the sa le are allowable incl ude these: (a) The entity has committed itself to se ll a noncu rrent asset, and it ex pec ts that othe rs may im– pose condi tions on the transfer of the asset and whe re the condition s co uld not be com– pleted un til after a firm pu rchase commitment has been made and a firm purc hase com– mitme nt is hig hly probable wit hin a year. (b) A firm purchase commitme nt is made bu t a buyer unexpected ly imposes co nditio ns on the transfer of the noncu rrent asset held for sa le. T imely actions should be taken to respon d to the condition s, and a favorable resolution is anticipated. (c) During the one-year period, unforeseen circums tances arise that were conside red unlikely, and the noncurrent asset is not so ld. Necessary actio n to res po nd to the cha nge in ci rc um– stances should be taken . The noncurrent asset should be bein g ac tive ly market ed at a rea– sonable price and the cri teria set out for the asset to be classified as held-for- sale should have bee n met. Facts An entity is planning to sell part of its business that is deemed to be a disposal group. The entity is in a business environment that is heavily regulated, and any sale requires government approval. This means that the sale time is difficult to determine. Government approval cannot be obtained until a buyer is found and known for the disposal group and a firm purchase contract has been signed. However, it is likely that the entity will be able to sell the disposal group within one year. Required Would the disposal group be classified as held for sale? Solution The disposal group would be classified as held for sale because the delay is caused by events or circum– stances beyond the entity's control and there is evidence that the entity is committed to selling the dis– posal group. Facts An entity has an asset that has been designated as held for sale in the financial year to December 31, 20X5. During the financial year to December 31, 20X6, the asset still remains unsold, but the market conditions for the asset have deteriorated significantly. The entity believes that market conditions will improve and has not reduced the price of the asset, which continues to be classified as held for sale. The fair value of the asset is $5 million, and the asset is being marketed at $7 million. Required Should the asset be classified as held for sale in the financial statements for the year ending Decem– ber 31, 20X6? Solution Because the price is in excess of the current fair value, the asset is not available for immediate sale and should not be classified as held for sale. Case Study 2 Case Study 3