Non current assets held for sale and discontinued

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Non current assets held for sale and discontinued

  1. 1. NON CURRENT ASSETS HELD FOR SALE (NCAHS) AND DISCONTINUED OPERATIONS IFRS - 5 N R GOVINDARAJAN CHARTERED ACCOUNTANT FCA,GRAD.CWA,DISA,CISA
  2. 2. OVERVIEW <ul><li>Introduction </li></ul><ul><li>Scope and objectives </li></ul><ul><li>Definitions </li></ul><ul><li>Para 8 conditions </li></ul><ul><li>Para 9 exceptions </li></ul><ul><li>Disposal assets </li></ul>
  3. 3. OVERVIEW <ul><li>Partial and piecemeal disposals </li></ul><ul><li>Abandoned assets </li></ul><ul><li>Changes in disposal plan </li></ul><ul><li>Presentation and disclosures </li></ul><ul><li>Summary of measurement principles </li></ul><ul><li>IGAAP VS IFRS </li></ul>
  4. 4. Introduction <ul><li>Provides a Frame work for accounting for Non current assets held for sale (NCAHS) </li></ul><ul><li>Replaces IAS 35 – Discontinuing operations </li></ul><ul><li>Presentation and disclosure of Non current assets held for sale and discontinued operations </li></ul><ul><li>Realisation of carrying amount through sale and not through use </li></ul><ul><li>Sale should be highly probable and available for immediate sale </li></ul><ul><li>Terms and conditions for sale should be usual and customary for such assets </li></ul>
  5. 5. AS 24 VS IND AS 24 <ul><li>COMPARISON </li></ul>
  6. 6. Scope and objectives <ul><li>Applies to all recognised non current assets or disposal group of an entity </li></ul><ul><li>Not applicable where other IFRS is applicable </li></ul><ul><li>IAS 12 – Deferred tax assets </li></ul><ul><li>IAS 19 – Assets arising from employee benefits </li></ul><ul><li>IAS 39 – Financial Asssets </li></ul>
  7. 7. Scope and objectives <ul><li>IAS 40 – Non current assets accounted under fair value approach </li></ul><ul><li>IAS 41- Non current assets that are measured at fair value less point of sale costs </li></ul><ul><li>IFRS 4 – contractual rights under Insurance contracts </li></ul>
  8. 8. Definitions <ul><li>Disposal group </li></ul><ul><li>Discontinued operations </li></ul>
  9. 9. Para 8 conditions <ul><li>To classify any asset or group as NCAHFS or DG the following conditions are to be met: </li></ul><ul><li>The asset is available for immediate sale </li></ul><ul><li>Management must be committed to a plan to sell the asset </li></ul><ul><li>Active program to locate the buyer and complete the plan must be initiated </li></ul><ul><li>Asset or disposal group must be actively marketed for a sale at a price reasonable in relation to its fair value </li></ul>
  10. 10. Para 8 conditions <ul><li>Action required to complete the plan indicate that it is unlikely that plan will be withdrawn or significantly changed </li></ul><ul><li>The sale is highly probable within 1 year of classification as held for sale ( subject to exceptions as per para 9) </li></ul><ul><li>CASE STUDY 1 </li></ul>
  11. 11. Para 9 conditions <ul><li>Para 9 allows exception to the condition of one year period in respect of sale of such assets </li></ul><ul><li>In case of circumstances beyond the control of the entity the sale could not be completed and </li></ul><ul><li>The entity is committed to the plan to sell the assets, the assets would still be classified as held for sale </li></ul><ul><li>Sufficient evidence should be available for the commitment </li></ul><ul><li>Three situations are contemplated under para 9 giving the conditions for exception cases to be applied </li></ul>
  12. 12. Para 9 conditions <ul><li>The following conditons are to be fulfilled for the application of exception rule: </li></ul><ul><li>Conditions imposed by others </li></ul><ul><li>Restrictions imposed by third parties </li></ul><ul><li>Unexpected circumstances that were previously considered unlikely </li></ul><ul><li>APPENDIX B – IFRS 5 </li></ul><ul><li>CASE STUDY 4 </li></ul>
  13. 13. Disposal assets <ul><li>Where an entity acquires some assets which it intends to sell due to regulatory requirement etc then such assets shall meet the requirements of para 8 for being classfied as NCAHS </li></ul><ul><li>If not, a short period of 3 months is provided to meet the requirements from the date of acquisition </li></ul><ul><li>In case the conditions are met after the balance sheet date then it should not classify the assets as NCAHS </li></ul><ul><li>However, if the conditions are met after the balance sheet date and but before they are authorised, then disclosures are to be made in notes </li></ul>
  14. 14. Partial and piecemeal disposals <ul><li>When assets or disposal groups meet the conditions for NCAHS at different points it is considered as not a coordinated plan for disposal </li></ul><ul><li>In such cases each asset should meet the criteria for classification as NCAHS </li></ul><ul><li>When the part of an asset is sold it does not fall within the scope of IFRS 5 </li></ul>
  15. 15. Abandoned assets <ul><li>Abandonment of assets or business would not constitute sale and hence such assets cannot be classified as held for sale as carrying amount would be recovered only thorough continuing use </li></ul><ul><li>Temporary non use is not abandonment </li></ul><ul><li>Eg: An entity shutting down operations due to low demand and is in full working condition and could commence once the situatation improves, cannot term it as “abandoned operations” </li></ul>
  16. 16. Changes in disposal plan <ul><li>NCAHS once not meeting the criteria would be reclassified as held for use </li></ul><ul><li>The measurement principles would change accordingly </li></ul><ul><li>It would be lower of </li></ul><ul><li>The carrying amount before classification as NCAHS adjusted for items such as depreciation,amortisation, revaluation had such assets been treated as not held for sale and; </li></ul><ul><li>The recoverable amount on the date of reclassification as per IAS 36 – Impairment of Assets </li></ul><ul><li>The adjustment would be shown in the Income Statement as a part of continuing operations </li></ul>
  17. 17. Presentation and disclosures <ul><li>It should enable the users of FS to evaluate the financial effects of discontinued operations and disposal of non current assets </li></ul><ul><li>NCAHS and DG should be presented separately from other assets and liabilities in the statement of financial position </li></ul><ul><li>Statement of Comphrensive income should show a single amount of Profit or loss of discontinued operations and its analysis </li></ul>
  18. 18. Presentation and disclosures <ul><li>The following information pertaining to NCAHS should be given in the year in which it is so classified or sold: </li></ul><ul><li>Description of the asset </li></ul><ul><li>Facts and circumstances of sale or expected manner and timing of disposal </li></ul><ul><li>Gain/loss or impairment recognised </li></ul><ul><li>In case of change of plan to sell, the description of facts and circumstances leading to the decision and its effect on the operations of the current and prior period </li></ul>
  19. 19. Thank you [email_address]

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