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- 4 Marks
Question
b) IFRS 5: Non-current Assets Held for Sale and Discontinued Operations sets out the principles governing the measurement and presentation of non-current assets that are expected to be realised through sale rather than through continuing use. The standard also deals with reporting the results of operations that qualify as discontinued operations.
Required:
Identify TWO (2) conditions which must be present in order to present the results of an operation as “discontinued” and the accounting treatment that applies when such a classification is deemed appropriate.
(4 marks)
Answer
- Conditions for Presenting Results as Discontinued Operations (IFRS 5):
- Condition 1: Separate Major Line of Business or Geographical Area
To classify an operation as discontinued, it must represent a separate major line of business or geographical area of operations. This could involve a business unit that is distinct from the entity’s other operations. - Condition 2: Plan to Sell the Operation
The disposal of the operation must be part of a single co-ordinated plan to dispose of a separate major line of business or geographical area. The sale must be highly probable, and management should be committed to a sale that is expected to be completed within one year.
- Condition 1: Separate Major Line of Business or Geographical Area
- Accounting Treatment for Discontinued Operations:
- Presentation in the Financial Statements:
Results from discontinued operations must be presented separately in the statement of profit or loss. This includes the post-tax profit or loss from discontinued operations and any gain or loss on the disposal or remeasurement of assets classified as held for sale. - Measurement:
Non-current assets classified as “held for sale” should be measured at the lower of carrying amount and fair value less costs to sell. Once classified as “held for sale,” these assets should no longer be depreciated or amortized.
- Presentation in the Financial Statements:
- Tags: Classification, Discontinued Operations, IFRS 5
- Level: Level 3
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