In accordance with IFRS 5: Non-Current Assets held for Sale and Discontinued Operations explain with reasons, whether each of the following could most likely be classified as a discontinued operation in this year’s financial statements:
i) A reportable operating segment that met the definition of held for sale after the year end, but before the financial statements were authorised for issue. (2 marks)
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Classification as held for sale is a non-adjusting event after the reporting period (IAS 10 para 22(c)). Therefore the definition of a discontinued operation is not met as the assets are neither discontinued in the period nor classified as held for sale at the year end.
ii) A division of a business, classified as held for sale, that was correctly treated as a discontinued operation in last year’s financial statements, but which has not been sold by this year-end due to the sale being referred to the Securities and Exchange Commission (SEC). SEC is not expected to report its findings until 6 months after this year end. (2 marks)
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For an operation not yet sold or abandoned to meet the definition of discontinued operation, it must meet the IFRS 5 held for sale criteria. All of these criteria were met at the previous year end, however at the current year end the operation was not sold within 12 months of classification and the period is expected to be extended well past this. However, where the period is extended by an event beyond the entity’s control such as this IFRS 5 Appendix B permits classification as held for sale (and therefore treatment as a discontinue operation) to continue provided the other criteria are still met, which appears to be the case here.
Identification of the reportable operating segment as a discontinued – 1 mark
Explanation of the treatment – 1 mark