IND AS 105: Non Current Assets held for sale and discontinued operations

I. Objective

1. Accounting treatment and disclosure of

• Non current assets held for sale.
• Discontinued operations

2. To inform the users of the financial statements

• Non current assets held for sale.
• Discontinued operations.

II. Discontinued operations

1. Component of entity that has been either disposed off or classified as held for sale.
2. Component includes:

• A separate major line of business or a geographical segment.
• A subsidiary acquired exclusively with a view to re-sale.

III. When to classify an asset as held for sale?         

1. When the carrying amount can be re-covered through sale rather than continuing use.
2. The same applies to disposal group. Disposal group is a set of assets and liabilities that could be disposed off in a single transaction.

IV. When will an asset or disposal group be recovered through sale rather than continuing use

1. Should be available for sale in its present condition
2. Sale must be highly probable (more likely than not)

V. Three examples for immediately being available for sale

1. In case of renovation being done, it will be available for sale only after completion of renovation.

2. In case of a factory being sold, it is said to be available for sale only if all the orders are completed or if the factory is being sold along with incomplete orders.

3. In case of moving out of corporate head office, it is said to be available for immediate sale only if a replacement has already been finalized. It cannot be concluded to be available for sale immediately if a buyer is finalized yet another office space is to be hunted.

VI. Criteria for sale to be highly probable

1. Entity must be committed to a plan to sell the asset.

Eg: BOD resolution, AGM resolution

2. There must be an active program to find the buyer.

Eg: Advertisement, Tender

3. Sale is expected to be completed within a period of 1 year from the date of classification.

• If it is beyond 1 year, the circumstances must be beyond the control of the entity.
• Entity must still be committed to a plan to sell the asset

4. Withdrawal from the plan to sell the asset is highly unlikely.

5. Price quoted by the entity must be reasonably close to its fair value.

VII. Accounting for assets held for sale

To be accounted for sale at  lower of carrying amount  or fair value (net of costs to sell)

Whichever is low

• Depreciation or amortization should be ceased from the moment the asset is classified as held for sale.
• After the asset is classified as held for sale, any impairment loss is to be charged to P&L
• Any upward revaluation subsequently on account of fair valuation shall be restricted to the earlier cumulative impairment loss
• On the initial recognition date, any revaluation surplus that exists shall be freezed and shall be transferred to the revenue reserve on disposal.

VIII. Disposal group

1. Impairment loss under standard Ind AS 105 shall be allocated to the disposal group in the following order

• First preference should be given to the carrying amount of goodwill.
• Then to the other non current assets covered under Ind AS 105 on pro rata basis of carrying amount.

2. Subsequently when the fair value increases, the gain to the extent of goodwill is not to be recognized. Gain to the extent of cumulative impairment is to be recognized in P&L Account and added to the corresponding non-current assets under Ind AS 105

3. Immediately before classifying an asset as held for sale, one should measure it under the applicable Ind AS.

Example

1. PPE => Ind AS 16
2. Inventory=> Ind AS 2
3. Intangible assets => Ind AS 36
4. Investment in Equity => Ind AS 109

Note: Subsequently when the fair value of disposal group decreases, the amount of decreases, the amount of decrease is to be charged to the non current assets covered under Ind AS 105. Non current assets include both tangible as well as intangible.

Change in plan to sell the asset

a. Re-measure the non current asset at lower of

• Original carrying amount before classification as held for sale.
• Less: Accumulated depreciation/amortization
• Less: Accumulated revaluation

or

b. Recoverable amount at the date of subsequent decision not to sell.

Note: Difference due to re-classification to be charged to P&L.