Criteria
A company plans to sell a building but has not yet started marketing it. Management only “intends” to sell next year.
Should it be classified as held for sale?
No. There’s no active marketing or approved plan, so the criteria in IFRS 5 paragraph 8 are not met.
If a piece of land is being held for sale, what amount would you reclassify it at? The carrying amount is $1.5 million, the fair value is $1.6 million, and the selling costs are $200,000.
$1.4 million
Fair value less costs to sell = 1.6 – 0.2 = 1.4 million.
The Woland Company plans to sell its orca whales with a measured cost of $200,000 using the cost model, from the Aquatic Centre in Ottawa to a Japanese company, The Happy Cove Fisheries. Can the orcas be classified as non-current assets held for sale under IFRS 5?
Yes, as the company used the cost model.
A company signs a sales contract for equipment, but shipment is delayed 9 months due to the buyer’s permit process.
Can it stay classified as held for sale?
Yes. The delay is beyond the company’s control, and the sale is still highly probable allowed under IFRS 5 paragraph 9.
Which assets can be classified as held for sale but not measured according to IFRS 5 standards?
a. Groups of contracts within the scope of IFRS 17
b. Leases within the scope of IFRS 16
c. Inventories measured by net realisable value under IAS 2
d. Biological assets using the FVLCTS model under IAS 41
e. Deferred tax assets under IAS 12
A, D, & E
The 6 types of assets include Deferred tax asset (IAS 12), Assets arising from employee benefits (IAS 19), Financial Assets within the scope of IFRS 9, Investment Properties in accordance with FVLCTS (IAS 40), Biological assets using the FVLCTS (IAS 41), and Groups of contracts within the scope of IFRS 17.
No, it's an investment property not noted to be using the cost model.
An entity decides to use an old machine until it stops working, then scrap it. Is it held for sale or abandoned?
Abandoned. IFRS 5 paragraph 13 says assets to be abandoned are not held for sale because they’ll be used until the end of their life.
If a non-current asset meets all the criteria for an asset held for sale and it has been remeasured based on the lower of carrying costs and fair value less cost to sell, it continues to depreciate until it is sold.
True or False?
False, once a non-current asset is re-measured it is no longer depreciated.
The Woland Company operated a gas station as a trial for future expansion, but the project failed and the station has since been demolished. The company now plans to sell the land, though provincial law requires them to complete environmental remediation before the sale. The cleanup will take about three months, and they expect to sell the property within 12 months. Can the land be classified as non-current assets held for sale under IFRS 5 right now?
No. The land cannot be classified as a non-current asset held for sale under IFRS 5 until the environmental remediation is completed, because it is not available for immediate sale in its current condition.
A company is in early talks to sell one of its warehouses. Management has approved the sale plan, but no buyer has been found yet. The company is actively advertising the warehouse at a price above its fair value hoping to negotiate. Can this warehouse be classified as held for sale?
No.
Even though management is committed and marketing has started, the sale price isn’t reasonable compared to fair value. According to IFRS 5 paragraph 8, the asset must be marketed at a price that reflects its current fair value for the sale to be considered highly probable. Because the asking price is unrealistic, the criteria aren’t fully met.
A non-current asset meets the qualifications as held for sale but is a financial asset within the scope of IFRS 9. Would you:
A) Not classify it as an asset held for sale
B) Classify it as an asset held for sale and measure it in accordance with IFRS 5 (Lower of carrying cost and FVLCTS)
C) Classify it as an asset held for sale but follow the measurements under IFRS 9
D) None of the above
C) because it is one of the six exceptions in para. 5 that do not follow the measurements of IFRS 5 but can still be classified as a non-current asset held for sale.
The Woland Company held a company wide review of its assets to see what could be sold to raise funds. During the discussion, someone suggested selling a group of trucks in Calgary, a river boat in Ottawa, and a bumper car game in Halifax. Based on this person’s suggestions alone, would any of these assets now be classified as non current assets held for sale?
None, as a simple suggestion to sell does not meet IFRS 5 requirements.
A company plans to sell a group of assets and related liabilities including equipment, inventory, and a small loan tied to those assets together in one transaction. Management has approved the plan, and marketing has begun. Should the company classify only the equipment as held for sale, or the entire group?
The entire group should be classified as a “disposal group held for sale.” Under IFRS 5 paragraph 4 and 6, when assets and directly associated liabilities are to be disposed of together in a single transaction, they form a disposal group. The whole group is measured and presented as held for sale
A company has equipment, a non-current asset that is being held for sale, that meets the IFRS 5 criteria. The carrying cost is 150,000 and the FVLCTS is 185,000. What would be the journal entries needed?
The lower of carrying cost and FVLCTS is 150,000. Therefore, no adjustment needed just an entry to reclassify the asset.
DR. Non-current asset held for sale 150,000
CR. Equipment 150,000
The Woland Company plans to sell its Winnipeg Woland Wonderland, which includes the following:
1. Roller Coasters ($3.4 billion)
2. Shops and Restaurants ($800 million)
3. Land ($2.5 billion)
4. Deferred Tax Liability ($90 million)
5. Aquatic Centre ($500 million)
6. Aquatic Animals ($100 million),
7. Prepaid Insurance for the next 12 months ($50 million).
After reclassification under IFRS 5, what is the total for non-current assets held for sale (disposal group)?
Total non-current assets held for sale: $7.25 billion
($3.4 Billion Roller Coasters) + ($800 Million Shops & Restaurants) + ($2.5 Billion Land) + ($500 Million Aquatic Centre) + ($50 Million Prepaid Insurance)