Our accounting team at GCS Malta outline and discuss in more detail IFRS 5 in the following article.
When a business decides to sell a particular asset or some operations of part of its business, it will affect several financial factors such as future cash flows, profitability, and future operations of the company. Thus IFRS 5 was introduced to outline and guide businesses to separate the reporting of assets held for sale and discontinued operations. The reason behind such separation is so that external users of financial statements will not confuse the distinction and inappropriately determine the company’s profitability.
A non-current asset must be classified as held for sale if its carrying amount is expected to be recovered through proceeds from its sale rather than from future cash flows resulting from its use.
To be classified as such, IFRS 5 sets the following criteria to be met.
- Management must be committed to a plan to sell
- The asset is available for immediate sale
- Sale is highly probable; likely within 12 months of classification
Measurement, Presentation and Disclosure.
Immediately before classification, the asset which would be held for sale must be measured following the applicable IFRSs.
After classification, these assets are measured at the lower of carrying amount and fair value fewer costs to selling and must be presented separately on the face of the statement of financial position.
Discontinued Operations.
It is a component of an entity that has been disposed of or classified as held for sale and either represents a separate primary line of business or is part of a plan to dispose of.
IFRS 5 requires discontinued operations to be presented separately in the financial statements to inform readers of financial statements about the functions that the entity has concluded and those operations that will continue to generate future profits and cash flows.
Presentation of discontinued operations.
Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income tax, is required, either in the notes or in a separate section distinct from continuing operations.
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