How should a disposal group classified as held for sale be measured and presented under IFRS 5?

Question

AcadiFi · Accepted Answer

IFRS 5 sets out specific measurement and presentation rules once management commits to selling a disposal group and the sale is highly probable within 12 months.

**Classification Criteria**

A disposal group is classified as held for sale when:
- Management has committed to a plan to sell
- The asset is available for immediate sale in its present condition
- An active program to locate a buyer has been initiated
- The sale is expected to be completed within 12 months
- The asset is being actively marketed at a reasonable price

**Measurement Rule**

Once classified, the disposal group is measured at the **lower of carrying amount and fair value less costs to sell**. Crucially, **depreciation and amortization cease** from the date of classification.

**Worked Example — Kellerman Holdings:**

Kellerman decides to sell its packaging division. At classification date, the division's net assets are:

| Component | Carrying Amount |
|---|---|
| PP&E | $45,000,000 |
| Inventory | $8,200,000 |
| Trade receivables | $6,100,000 |
| Goodwill | $12,000,000 |
| Trade payables | ($4,300,000) |
| **Net carrying amount** | **$67,000,000** |

An independent valuation estimates fair value less costs to sell at $61,500,000. The impairment loss of $5,500,000 is allocated first to **goodwill**, then pro rata to other assets.

| Allocation | Amount |
|---|---|
| Goodwill write-down | $5,500,000 |
| Remaining to allocate | $0 |

Since goodwill absorbs the entire loss, PP&E and other assets remain at carrying value.

**Presentation:**

The disposal group is reclassified on the balance sheet as a single line item — "Assets held for sale" in current assets and "Liabilities associated with assets held for sale" in current liabilities. The income statement shows results of discontinued operations separately below continuing operations.

**Key Exam Points:**

1. Depreciation stops — this can inflate earnings relative to peers.
2. Impairment hits goodwill first, then other assets pro rata.
3. If fair value less costs to sell later increases, the impairment can be reversed (but not above original carrying amount, and never for goodwill).
4. If the sale is not completed within 12 months, the classification is generally removed unless the delay is caused by events beyond the entity's control.

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How should a disposal group classified as held for sale be measured and presented under IFRS 5?

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