THE INTERNATIONAL Accounting Standards Board (IASB) has issued IFRS 5 Non-current assets held for sale and discontinued operations. The standard replaces IAS 35 discontinuing operations. The standard specifies the accounting requirements for assets (and disposal groups) that are held for sale and the presentation and disclosure of discontinued operations. A summary of the requirements of this new standard is as follows.
NON-CURRENT ASSETS
HELD FOR SALE
Measurement requirements apply to all 'disposal groups' and to all recognised non-current assets, except for financial assets, deferred tax assets, employee benefits, asset and insurance contracts, and certain assets measured at fair value, e.g. investment property.
'Disposal group' is defined as a group of assets to be disposed of together, by sale or otherwise, in a single transaction, and the liabilities directly associated with those assets that will be transferred in the transaction.
A non-current asset (or disposal group) is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use. It must be available for immediate sale in its present condition and its sale must be highly probable. Sale should be expected within one year.
A non-current asset (or disposal group) should be re-measured in accordance with the applicable IFRS immediately before it is reclassified as held for sale. Gains and losses on re-measurement are recognised in accordance with the relevant standard.
Non-current asset or disposal group classified as held for sale is measured at the lower of (i) carrying amount and (ii) fair value, less costs to sell.
Assets held for sale should not be depreciated.
A non-current asset that ceases to be classified as held for sale is measured at the lower of (i) the carrying amount had the asset not been classified as held for sale and (ii) its recoverable amount.
The key disclosure requirements include:
Separate presentation on the face of the balance sheet of the total of non-current assets classified as held for sale and liabilities classified as held for sale as part of a disposal group.
Analysis, on the face of the balance sheet or in the notes, of the major classes of assets and liabilities that is classified as held for sale.
Gain or loss arising on reclassification or subsequent measurement of a non-current asset classified as held for sale.
Description of non-current assets or disposal group classified as held for sale and the reason for reclassification.
DISCONTINUED OPERATIONS
An operation should be classified as discontinued at the earlier of the date that the operation has been disposed of and the date that it meets the criteria to be classified as held for sale.
A discontinued operation is considered as a component of an entity that represents a separate major line of business or geographical area of operations or a subsidiary acquired exclusively with a view to resale.
Retroactive classification as a discontinued operation is not permitted.
The key disclosure requirements include:
Separate presentation on the face of the income statement of a single amount relating to discontinued operations.
An analysis of the amount in the income statement separately showing revenue, expenses, pre-tax profit or loss, income tax expense and gains and losses on re-measurement to fair value less costs to sell.
Net cash flows attributable to the operating, investing and financing activities of discontinued operations.
This new standard is effective for accounting periods beginning on or after January 1, 2005.
Mr. Raphael E. Gordon is the managing partner of KPMG in Jamaica and chairman of KPMG CARICOM. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
TAKEN FROM THE FINANCIAL GLEANER - FRIDAY, MARCH 10, 2006
