History of IFRS 5DateDevelopmentCommentsSeptember 2002Project added to IASB agendaHistory of the project24 July 2003Exposure Draft ED 4 Disposal of Non-current Assets and Presentation of Discontinued Operations publishedComment deadline 24 October 200331 March 2004IFRS 5 Non-current Assets Held for Sale and Discontinued Operations issuedEffective for annual periods beginning on or after 1 January 200522 May 2008Amended by Improvements to IFRSs 2007 (sale of a controlling interest in the subsidiary)Effective for annual periods beginning on or after 1 July 200927 November 2008Consequential amendments from IFRIC 17 Distributions of Non-cash Assets to Owners (assets held for distribution to owners)Effective for annual periods beginning on or after 1 July 200916 April 2009Amended by Improvements to IFRSs 2009 (disclosure requirements in other standards)Effective for annual periods beginning on or after 1 January 201025 September 2014Amended by Improvements to IFRSs 2014 (changes in methods of disposal)Effective for annual periods beginning on or after 1 January 2016Related Interpretations
Amendments under consideration
Summary of IFRS 5BackgroundIFRS 5 achieves substantial convergence with the requirements of US SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets with respect to the timing of the classification of operations as discontinued operations and the presentation of such operations. With respect to long-lived assets that are not being disposed of, the impairment recognition and measurement standards in SFAS 144 are significantly different from those in IAS 36 Impairment of Assets. However those differences were not addressed in the short-term IASB-FASB convergence project. Show
Key provisions of IFRS 5 relating to assets held for saleHeld-for-sale classificationIn general, the following conditions must be met for an asset (or 'disposal group') to be classified as held for sale: [IFRS 5.6-8]
The assets need to be disposed of through sale. Therefore, operations that are expected to be wound down or abandoned would not meet the definition (but may be classified as discontinued once abandoned). [IFRS 5.13] An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for held-for-sale classification under IFRS 5 classifies all of the assets and liabilities of that subsidiary as held for sale, even if the entity will retain a non-controlling interest in its former subsidiary after the sale. [IFRS 5.8A] Held for distribution to owners classification The classification, presentation and measurement requirements of IFRS 5 also apply to a non-current asset (or disposal group) that is classified as held for distribution to owners. [IFRS 5.5A and IFRIC 17] The entity must be committed to the distribution, the assets must be available for immediate distribution and the distribution must be highly probable. [IFRS 5.12A] Disposal group conceptA 'disposal group' is a group of assets, possibly with some associated liabilities, which an entity intends to dispose of in a single transaction. The measurement basis required for non-current assets classified as held for sale is applied to the group as a whole, and any resulting impairment loss reduces the carrying amount of the non-current assets in the disposal group in the order of allocation required by IAS 36. [IFRS 5.4] MeasurementThe following principles apply:
The measurement provisions of IFRS 5 do not apply to deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9 Financial Instruments, non-current assets measured at fair value in accordance with IAS 41 Agriculture, and contractual rights under insurance contracts. [IFRS 5.5] PresentationAssets classified as held for sale, and the assets and liabilities included within a disposal group classified as held for sale, must be presented separately on the face of the statement of financial position. [IFRS 5.38] DisclosuresIFRS 5 requires the following disclosures about assets (or disposal groups) that are held for sale: [IFRS 5.41]
Disclosures in other IFRSs do not apply to assets held for sale (or discontinued operations, discussed below) unless those other IFRSs require specific disclosures in respect of such assets, or in respect of certain measurement disclosures where assets and liabilities are outside the scope of the measurement requirements of IFRS 5. [IFRS 5.5B]
Key provisions of IFRS 5 relating to discontinued operationsClassification as discontinuingA discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and: [IFRS 5.32]
IFRS 5 prohibits the retroactive classification as a discontinued operation, when the discontinued criteria are met after the end of the reporting period. [IFRS 5.12] Disclosure in the statement of comprehensive income The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less cost to sell or fair value adjustments on the disposal of the assets (or disposal group) is presented as a single amount on the face of the statement of comprehensive income. If the entity presents profit or loss in a separate statement, a section identified as relating to discontinued operations is presented in that separate statement. [IFRS 5.33-33A]. Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income taxes is required either in the notes or in the statement of comprehensive income in a section distinct from continuing operations. [IFRS 5.33] Such detailed disclosures must cover both the current and all prior periods presented in the financial statements. [IFRS 5.34] Cash flow informationThe net cash flows attributable to the operating, investing, and financing activities of a discontinued operation is separately presented on the face of the cash flow statement or disclosed in the notes. [IFRS 5.33] Is discontinued operations included in profit or loss?A discontinued operation may still make a gain or loss in the accounting period it ceased operations in. These gains or losses must be reported. However, often a discontinued operation was operating at a loss, so there may be some money realized from taxes at tax time.
When a company discontinues an operation and disposes?17. When a company discontinues an operation and disposes of the discontinued operation (segment), the transaction should be included in the income statement as a gain or loss on disposal reported as a. a prior period adjustment.
Why are gains and losses from a discontinued segment reported in a separate section of the income statement?Discontinued operations are listed separately on the income statement because it's important that investors can clearly distinguish the profits and cash flows from continuing operations from those activities that have ceased.
Where is a gain or loss from discontinued operations reported in the financial statements?Gains / (Losses) on Asset Sales
The gains or losses from a non-recurring event are recognized separately on the company's income statement below the performance of its core operations so that investors can easily distinguish between continuing vs. discontinued operations.
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