ADVANCED ACCOUNTING 2011 Week 17

1. ADVANCED ACCOUNTING2011Week 17 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS IFRS 5

2. 2 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS STUDY OBJECTIVES: ACCOUNTING IN A NUTSHELL SCOPE OF IFRS 5 CLASSIFICATION AS �HELD FOR SALE� INDIVIDUAL ASSETS HELD FOR SALE DISPOSAL GROUPS HELD FOR SALE PRESENTATION AND DISCLOSURE � ASSETS HELD FOR SALE CHANGES TO A PLAN OF SALE NOTION OF A DISCONTINUED OPERATION PRESENTATION & DISCLOSURE - DISCONTINUED OPERATION SUBSIDIARY HELD FOR SALE

3. 3 1. ACCOUNTING IN A NUTSHELL 1.1 Objective of IFRS 5 is to basically specify 2 issues: the accounting for assets �held for sale�; and the presentation and disclosure of discontinued operations 1.2 Why classify as �held for sale� CA to be recovered through sale transaction rather than continuing use therefore need to apply �special accounting� cannot classify assets to be abandoned as �held for sale� but disposal group to be abandoned may meet the criteria of a discontinued operation 1.3 �Held for sale� and �discontinued operation� always go together? No!; may have one but not the other could have both, eg subsidiary held for sale (refer 10)

4. 4 1. ACCOUNTING IN A NUTSHELL 1.4 Provided criteria met to be classified as NCA�s held for sale: Carrying amount measure asset at lower of FV less cost to sell 1.5 Stop depreciating asset from date of classification 1.6 Present NCA�s held for sale separately on face of balance sheet: as a separate line added to sub-total of current assets, or �3rd category� heading 1.7 Present continuing operations separately from discontinued operations on face of statement of comprehensive income

5. 5 2. SCOPE OF IFRS 5 2.1 Classification and presentation Measurement requirements of IFRS 5 requirements of IFRS 5 applies to all NCA�s & applies to all NCA�s & NCA�s, and - NCA�s, and disposal groups - disposal groups except (why?) - financial assets i.t.o IFRS 9 - investment prop on FV model - deferred tax assets - employee benefit assets ILLUSTRATIVE EXAMPLE 19.4; Chapter 19, page 13 2.2 All the requirements of IFRS 5 also apply to NCA�s held for distribution

6. 6 3. CLASSIFICATION AS �HELD FOR SALE� 3.1 Classified as such if CA to be recovered through sale rather than through use 3.2 Two basic requirements � para 7: must be available for immediate sale in its present condition sale must be highly probable 3.3 Highly probable means: management is committed to a plan to sell asset actively seeking a buyer asset is actively marketed at a reasonable price sale expected to be completed within 1 year unlikely of a significant change to plan or plan will be withdrawn

7. 7 3. CLASSIFICATION AS �HELD FOR SALE� 3.4 Period to complete sale may extend > I year if� : delay caused by events/circumstances beyond control of entity, and if sufficient evidence exists that entity remains committed to plan to sell asset 3.5 NCA / disposal group acquired exclusively with a view to sell: only classified as held for sale if 1-year requirement met and it is highly probable that any other criteria not met at acquisition date will be met within short period (3 months) 3.6 What if criteria met in post-balance sheet period? entity cannot classify NCA�s as held for sale in those AFS

8. 8 4. INDIVIDUAL ASSETS HELD FOR SALE 4.1 Measure assets held for sale: at lower of carrying amount or FV less cost to sell Beg of date of Year year classification end remeasure at year end measure using measure at lower of applicable IFRSs CA or FV less cost to sell (note exceptions) 4.2 No depreciation on assets classified as held for sale

9. 9 4. INDIVIDUAL ASSETS HELD FOR SALE 4.3 If NCA held for sale is acquired as part of business combination, measure at FV less cost to sell 4.4 If sale expected > 1 year, measure FVLCTS at present value 4.5 Recognise impairment loss for initial / subsequent write-down 4.6 Recognise a gain for subsequent increase in FVLCTS ie it is an impairment reversal but not in excess of cumulative impairment recognised ILLUSTRATIVE EXAMPLES 19.5 & 19.6; Chapter 19, page 14/15

10. 10 5. DISPOSAL GROUPS HELD FOR SALE 5.1 Is a group of assets and directly associated liabilities: to be disposed of as a group in a single transaction 5.2 Measure disposal group � as a whole � at lower of CA or FV less costs to sell of the disposal group 5.3 Prior to classification of disposal group as held for sale: measure assets/liabilities in group with applicable IFRSs what about assets that are in disposal group but NOT within the measurement scope, eg Investment property? ILLUSTRATIVE EXAMPLE 19.7; Chapter 19, page 17

11. 11 PRESENTATION AND DISCLOSURE- ASSETS HELD FOR SALE 6.1 Show separately in balance sheet as a 3rd heading on face of balance sheet or add to the sub-total of current assets 6.2 For a disposal group show assets and liabilities separately do not offset assets and liabilities disclose major classes of assets and liabilities in notes 6.3 Do not reclassify or re-present prior year balance sheet in respect of the NCAs now classified as held for sale

12. 12 7. CHANGES TO A PLAN OF SALE 7.1 If criteria for held for sale no longer met: entity must cease to classify asset/disposal group as held for sale 7.2 NCA that ceases to be classified as held for sale is measured at lower of: its CA before it was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would otherwise have been recognised, and its recoverable amount at date of decision not to sell 7.3 Required adjustment on change to plan recognised where? ILLUSTRATIVE EXAMPLE 19.8; Chapter 19, page 19

13. 13 8. NOTION OF A DISCONTINUED OPERATION 8.1 Is a component of an entity that is either: disposed of, or classified as held for sale 8.2 What is a component of an entity? can be distinguished operationally and for financial reporting purposes 8.3 A discontinued operation is a : separate major line of business / geographical area is part of a single coordinated plan of disposal is a subsidiary acquired exclusively for resale

14. 14 9. PRESENTATION AND DISCLOSURE- DISCONTINUED OPERATION 9.1 Present stat. of comprehensive income (SOCI) in 2 sections: continuing operations section discontinued operations section 9.2 A single amount on the face of the SOCI comprising: after-tax profit / loss of discontinued operations; and after-tax gain or loss on disposal or impairment 9.3 An analysis of the single amount (face or note), ie revenue, expenses and pre-tax profit related tax expense gain or loss on disposal or impairment; and related tax

15. 15 9. PRESENTATION AND DISCLOSURE- DISCONTINUED OPERATION 9.4 Must re-present and restate comparatives to SOCI unlike when NCA held for sale disclosed in BS refer 6.3 above 9.5 IAS 37 deals with �Restructuring costs� restructuring includes a discontinued operation NB. 2 requirements for a restructuring provision at y/e 9.6 NOTE: NCAs held for sale disclosures and disc ops disclosures are not mutually exclusive: you can have both and one but not the other 9.7 Disclose net cash flows of discontinued operation

16. 16 10. SUBSIDIARY HELD FOR SALE 10.1 Where entity committed to a sale plan involving loss of control of subsidiary (IFRS 5.8A): classify assets and liabilities of sub as held for sale provided relevant criteria (paras 6-8) met and irrespective if non-controlling interest retained 10.2 Entity will however, still consolidate the subsidiary. How? not the normal line-by-line consolidation in balance sheet subsidiary�s assets grouped separately as held for sale subsidiary�s liabilities grouped separately as held for sale

17. 17 10. SUBSIDIARY HELD FOR SALE 10.3 Where entity committed to a sale plan involving loss of control of subsidiary (IFRS 5.36A): shall if it meets the definition of a discontinued operation disclose the relevant information for discontinued operations 10.4 So how will the SOCI be consolidated? basically as a discontinued operation and not on a line-by-line basis