IFRS 5 Held for Sale and Discontinued Operations: Classification and Measurement

Sometimes an entity decides to sell an asset, or a whole part of its business, rather than keep using it. Showing that asset in the usual way, depreciating it and mixing it with assets in use, would give a misleading picture of what the entity will look like next year.

International Financial Reporting Standard (IFRS) 5 Non-current Assets Held for Sale and Discontinued Operations sets strict tests for when an asset is treated as held for sale, how it is measured and presented, and when a part of the business is shown separately as a discontinued operation. The next topic starts the leases standard.

In the diets reviewed for this page the topic appears in May Diet, 2022, in the 30-mark compulsory accounts question, where a plant held for sale has to be written down to its fair value less costs to sell and shown as a separate current asset. Examiners reported that candidates found it hard to work out the amount at which the held-for-sale asset should be shown. Read investment property first.

Classifying an asset as held for sale

Three kinds of item are covered, in rising order of complexity: non-current assets, disposal groups and discontinued operations. A disposal group is a group of assets to be disposed of together in a single transaction, with any liabilities directly associated with those assets that will be transferred in the transaction. The classification and presentation rules apply to all recognised non-current assets and disposal groups.

A non-current asset or disposal group is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use. All the following must apply at the reporting date:

1. The asset is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets.
2. The sale is highly probable, which needs all three of: the appropriate level of management is committed to a plan to sell; an active programme to locate a buyer and complete the plan has been started; and the asset is actively marketed at a price reasonable in relation to its current fair value.
3. The sale is expected to be completed within one year of classification, except in limited circumstances outside the entity’s control. It is unlikely that the plan will change significantly or be withdrawn.

If the criteria are met only after the reporting date but before the statements are authorised for issue, the asset is not classified as held for sale at the reporting date, though some disclosures are required. An asset that is to be abandoned, either by using it to the end of its economic life or by closing it, is not held for sale.

Three tests applied

• Priced too high. A property has been on the market for a year at ₦5 million, but no buyer has come because the price is above its fair value. Management refuses to cut the price. The price is not reasonable in relation to fair value, so it is not held for sale. A later offer or sale after the year end does not change that.
• Idle plant. Plant with a carrying amount of ₦2.5 million has stopped being used but is kept in working order in case it is needed. There is no firm commitment to sell, so it is not held for sale, even though it is sold shortly after the year end.
• Criteria met after the year end. If the plan to sell is made after the reporting date, the asset is not held for sale in the statements for the year just ended.

Measurement

An asset or disposal group held for sale is measured at the lower of its carrying amount and fair value less costs to sell. The carrying amount is the amount under the usual standard, before reclassification. While it is held for sale it is not depreciated or amortised.

• Carrying amount higher. The asset is written down to fair value less costs to sell and the difference is an impairment loss. A carrying amount of ₦20 million and fair value less costs to sell of ₦17 million gives a loss of ₦3 million.
• Carrying amount lower. There is no adjustment and no gain. A carrying amount of ₦20 million and fair value less costs to sell of ₦24 million leaves the asset at ₦20 million. A gain on sale is recognised only when the sale takes place.

The impairment loss goes to profit or loss. If the asset had a revaluation surplus, the loss is taken to other comprehensive income to the extent of that surplus, and any balance goes to profit or loss. Later changes are allowed in one direction only. A further fall is recognised. A later gain is recognised only up to the impairment already recognised.

Allocating a loss on a disposal group

When a loss arises on a disposal group, it is allocated first to goodwill and then to the other non-current assets in the group within the scope of the measurement rules, pro rata to their carrying amounts. Assets outside the measurement rules, such as inventory, receivables and other financial assets, deferred tax assets and investment property at fair value, are left at their own measurement.

A change of plan

If the criteria are no longer met, the asset is taken out of held for sale and measured at the lower of (a) the amount at which it would have been carried had it never been classified as held for sale, adjusted for depreciation, amortisation or revaluations that would have been recognised, and (b) its recoverable amount at the date of the decision not to sell. The adjustment goes to profit or loss from continuing operations.

Presentation and disclosure

• Non-current assets held for sale are shown separately from other assets in the statement of financial position. The assets and liabilities of a disposal group are shown separately and are not netted into one figure.
• The major classes of assets and liabilities held for sale are disclosed on the face or in the notes.
• Comparatives in the statement of financial position are not restated for the classification.
• A gain or loss on remeasurement that does not relate to a discontinued operation is part of profit or loss from continuing operations. The caption it is in is disclosed.
• In the period of classification or sale, the notes describe the asset or group, the facts and circumstances and the expected manner and timing of the disposal, and the segment in which it is reported, where IFRS 8 applies.

Discontinued operations

Closing down an operation changes the entity’s future prospects, so users need information about it separately. A discontinued operation is a component of an entity that has been disposed of or is classified as held for sale and:

1. represents a separate major line of business or geographical area of operations;
2. is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area; or
3. is a subsidiary acquired exclusively with a view to resale.

A component comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting, from the rest of the entity. A single asset that does not form a component is not a discontinued operation, and its gain or loss goes in the normal operating result. An operation cannot be classified as discontinued if the criteria are met after the reporting date.

Think of a discontinued operation as a disposal group that meets these extra tests.

Presentation

• A single amount on the face of profit or loss: the post-tax profit or loss of the discontinued operation, plus the post-tax gain or loss on measuring it at fair value less costs to sell or on disposing of it.
• An analysis of that amount, in the notes or on the face under a discontinued operations heading: revenue, expenses, pre-tax profit or loss and related tax, and the gain or loss on remeasurement or disposal and related tax.
• The net cash flows from operating, investing and financing activities of the discontinued operation.
• Comparatives are restated in profit or loss so that they show the operations discontinued by the end of the latest period. The statement of financial position comparatives are not restated.

The ideas in more depth

Why no gain at classification

A gain on an asset that has not yet been sold is not realised. Measuring at the lower of two amounts is a prudent rule: losses show at once, and gains wait for the sale. Not depreciating the asset follows from the fact that its carrying amount will be recovered by a sale, not by use.

Why the sale criteria are strict

Without strict tests, an entity could label many assets as held for sale to stop depreciation or to move losses around. The criteria require commitment, an active search for a buyer, a realistic price and a short time frame.

Sources and references

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: classification, measurement, presentation and disclosure.
• IFRS 9 Financial Instruments, IFRS 17 Insurance Contracts, International Accounting Standard (IAS) 12 Income Taxes, IAS 19 Employee Benefits, IAS 40 Investment Property and IAS 41 Agriculture, which set the measurement of assets outside IFRS 5’s measurement scope.

These points are stated as at 5 November 2026.

Worked examples

1. Carrying amount.
   ₦80,000 × 4/8 = ₦40,000 accumulated depreciation, so carrying amount ₦40,000.
2. Case (a). ₦48,000 is above ₦40,000, so no write-down and no gain.
   Year 5 gain on sale = ₦48,000 − ₦40,000 = ₦8,000.
3. Case (b), Year 4.
   Fair value less costs to sell = ₦41,000 − ₦2,000 = ₦39,000, below ₦40,000.
   The machine is written down to ₦39,000, an impairment loss of ₦1,000.
4. Case (b), Year 5.
   Net proceeds ₦37,500 − carrying amount ₦39,000 = ₦1,500 loss.

1. Loss.
   ₦200,000 − ₦168,000 = ₦32,000.
2. Goodwill first. ₦15,000, leaving ₦17,000.
3. Pro rata to PPE. Inventory and financial assets are outside the measurement scope. PPE totals ₦135,000.
   At cost: ₦90,000 ÷ ₦135,000 × ₦17,000 = ₦11,333.
   Revalued: ₦45,000 ÷ ₦135,000 × ₦17,000 = ₦5,667.
4. Result. Goodwill nil, PPE at cost ₦78,667, PPE revalued ₦39,333, inventory ₦30,000, financial assets ₦20,000, a total of ₦168,000. The loss on the revalued PPE goes to other comprehensive income to the extent of its revaluation surplus, and the rest to profit or loss.

1. Costs to sell.
   4% × ₦7,500 million = ₦300 million.
2. Fair value less costs to sell.
   ₦7,500 million − ₦300 million = ₦7,200 million.
3. Compare. ₦7,200 million is below ₦9,200 million, so the plant is shown at ₦7,200 million in current assets as held for sale.
4. Loss.
   ₦9,200 million − ₦7,200 million = ₦2,000 million, charged to profit or loss (in cost of sales if the question says so).

How to answer in the exam

• Discuss the conditions. List them all: available for immediate sale, commitment, active programme, reasonable price, within one year, change of plan unlikely, tested at the reporting date.
• Measure. Write both amounts, compare them, state the lower and say where the difference goes.
• Presentation. Say separately in the statement of financial position, not netted, comparatives not restated.
• Discontinued operations. Give the definition and the single post-tax amount, then the restated comparatives.

Common mistakes in the exam

• Using fair value instead of fair value less costs to sell.
• Recognising a gain when the fair value is above the carrying amount.
• Continuing to depreciate an asset held for sale.
• Classifying an asset as held for sale because it was sold after the year end.
• Treating every held-for-sale asset as a discontinued operation.
• Restating the statement of financial position comparatives.
• Allocating a disposal group loss to inventory or financial assets.

Quick revision

• Held for sale: immediately available, highly probable, within one year, price reasonable; tested at the reporting date.
• Measure at the lower of carrying amount and fair value less costs to sell. No depreciation. No gain on classification.
• Disposal group loss: goodwill first, then other in-scope non-current assets pro rata.
• Present separately; no netting; statement of financial position comparatives not restated.
• Discontinued operation: component, separate major line or area; one post-tax amount; profit or loss comparatives restated.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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