How is an asset classified as held for sale measured, and what happens to depreciation once it's reclassified?

Assets held for sale receive special measurement treatment under both IFRS 5 and ASC 360-10. The reclassification triggers immediate remeasurement and changes how the asset is subsequently accounted for.\n\nReclassification Criteria (both standards require ALL of these):\n\n1. Management commits to a plan to sell\n2. The asset is available for immediate sale in its present condition\n3. An active program to locate a buyer has been initiated\n4. The sale is probable and expected within one year\n5. The asset is being marketed at a reasonable price relative to fair value\n6. Actions required to complete the plan indicate it is unlikely to be significantly changed or withdrawn\n\nMeasurement Rule:\n\nAt reclassification, measure at the lower of:\n- Carrying amount, or\n- Fair value less costs to sell (FVLCTS)\n\nIf FVLCTS is lower, recognize an impairment loss immediately.\n\nDepreciation Stops:\n\nOnce classified as held for sale, the asset is no longer depreciated or amortized. The rationale is that the asset's value will be recovered through sale rather than through use, making systematic depreciation inappropriate.\n\nWorked Example:\n\nElmwood Manufacturing reclassifies its Portland facility as held for sale on October 1, 2026.\n\n| Item | Amount |\n|---|---|\n| Carrying amount (net of depreciation) | $28.5M |\n| Fair value (appraisal) | $25.0M |\n| Estimated costs to sell (broker fees, legal) | $1.2M |\n| FVLCTS | $23.8M |\n\nSince FVLCTS ($23.8M) < Carrying amount ($28.5M):\n- Impairment loss recognized: $28.5M - $23.8M = $4.7M\n- Asset carried at $23.8M on balance sheet\n- No further depreciation from October 1 forward\n\nSubsequent Measurement:\n\nAt December 31, 2026, a new appraisal values the facility at $26.5M, with costs to sell now estimated at $1.0M. FVLCTS = $25.5M.\n\nIFRS 5: Allows reversal of impairment up to the original carrying amount. Reversal = min($25.5M, $28.5M) - $23.8M = $1.7M gain. New carrying amount: $25.5M.\n\nUS GAAP (ASC 360-10): Also allows reversal for held-for-sale assets, but only up to the carrying amount at the date of reclassification less any depreciation that would have been recognized. If two months of depreciation would have been $0.4M, the maximum reversal ceiling = $28.5M - $0.4M = $28.1M. Since $25.5M < $28.1M, the full reversal of $1.7M is permitted.\n\nDisposal Group Considerations:\n\nWhen a disposal group (asset plus associated liabilities) is classified as held for sale:\n- Assets are presented separately on the balance sheet (not netted against liabilities)\n- The impairment loss is allocated to long-lived assets in the group first, then to other assets (but not below fair value for assets covered by other measurement standards like receivables and inventory)\n\nKey Differences Between Standards:\n\n| Feature | IFRS 5 | US GAAP |\n|---|---|---|\n| Reversal of impairment | Allowed up to original carrying amount | Allowed with depreciation-adjusted ceiling |\n| Scope | Non-current assets and disposal groups | Long-lived assets and disposal groups |\n| Investment property at FV | Excluded from IFRS 5 scope | Not applicable (no FV model for PP&E) |\n\nPractice held-for-sale scenarios in our CFA FRA modules.