Explain with justification, whether each of the following could most likely be classified as a discontinued operation under IFRS 5: Non-current Assets Held for Sale and Discontinued Operations 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. (1 mark)
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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 reportable operating segment that was closed down during the financial year. The assets of the segment were broken up and used in other divisions of the company. (2 marks)
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A reportable operating segment closed down during the year is likely to meet the definition of a discontinued operation because it represents a major part of the entity’s business and it was disposed of during the entity’s accounting period.
iii) 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 National Insurance Commission, which regulates the Insurance industry. The commission is not expected to report its findings until 6 months after this year end. (2 marks)
View Solution
For an operation not yet sold or abandoned to meet the definition of a 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 discontinued operation) to continue provided the other criteria are still met, which appears to be the case here.