IFRS 5: Non-current Assets Held for Sale and Discontinued Operations sets out the principles governing the measurement and presentation of non-current assets that are expected to be realised through sale rather than through continuing use. The standard also deals with reporting the results of operations that qualify as discontinued operations.
Required:
Identify TWO (2) conditions which must be present in order to present the results of an operation as “discontinued” and the accounting treatment that applies when such a classification is deemed appropriate. (4 marks)
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- A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
- represents a separate major line of business or geographical area of operations,
- is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or
- is a subsidiary acquired exclusively with a view to resale. (Any 2 points @ 1 mark each)
Accounting Treatment
- Discontinued operations are presented separately at the end of profit or loss by including the profit after tax generated by discontinued operations. This figure should include the post-tax gain or loss on disposal of the assets of the operation or the gain or loss on remeasurement following transfer to “held for sale”.
- A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.
- An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. (Any 2 points)