What criteria must be met for an asset or disposal group to be classified as held for sale under IFRS 5, and what does 'committed to a plan to sell' actually mean?

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AcadiFi · Accepted Answer

IFRS 5 sets out strict criteria for classifying a non-current asset (or disposal group) as held for sale. The classification triggers a measurement change and distinct presentation on the balance sheet. Here is the complete framework. **Classification Criteria — All Must Be Met** 1. **Management with authority** has committed to a plan to sell the asset. 2. The asset is **available for immediate sale** in its present condition, subject only to terms that are usual and customary for such sales. 3. An **active program to locate a buyer** has been initiated. 4. The sale is **highly probable** — more than just likely. 5. The asset is being actively marketed at a **price reasonable relative to its current fair value**. 6. The sale is expected to be completed **within one year** from the date of classification. 7. Actions required to complete the plan indicate it is **unlikely that significant changes** will be made to the plan or that it will be withdrawn. **What "Committed" Really Means:** \`\`\`mermaid flowchart TD A["Board/Management
Approves Sale"] --> B["Asset Available
Immediately"] B --> C["Buyer Search
Actively Underway"] C --> D["Marketed at
Reasonable Price"] D --> E["Sale Expected
Within 12 Months"] E --> F{"All Criteria Met?"} F -->|"Yes"| G["Classify as
Held for Sale"] F -->|"No"| H["Remain as
Non-Current Asset"] G --> I["Measure at Lower of:
Carrying Amount or
FV Less Costs to Sell"] G --> J["Cease Depreciation"] \`\`\` A plan is "committed" when the entity has taken concrete, observable steps — not merely discussed the possibility. Board minutes authorizing the sale, engagement of an investment bank, preparation of an information memorandum, and active negotiations all demonstrate commitment. **Worked Example — Crestview Holdings Disposes of Printing Division:** Crestview's board resolves on April 15 to sell the printing division. By April 30, they engage Kenton Advisory to run the process. A teaser is sent to 14 potential buyers by May 10. Two LOIs arrive by June 1. | Criterion | Evidence | Met? | |---|---|---| | Management committed | Board resolution April 15 | Yes | | Available immediately | Division operates standalone | Yes | | Active buyer program | Kenton engaged, teaser distributed | Yes | | Highly probable | Two LOIs received | Yes | | Reasonable price | Asking $180M vs. FV estimate $175M | Yes | | Within one year | Target close Q3 | Yes | | Plan unlikely to change | No alternative strategy discussed | Yes | **Result:** Classified as held for sale on April 15. Carrying value $160M vs. FV less costs to sell $170M — no write-down needed. Depreciation ceases immediately. **Measurement After Classification:** - Measured at the **lower of carrying amount and fair value less costs to sell**. - **No depreciation or amortization** after classification. - Presented separately on the balance sheet (not within PP&E). - If the disposal group includes assets and liabilities, both are shown separately in current assets and current liabilities. Check our CFA Level II FRA course for IFRS 5 practice questions and case studies.

What criteria must be met for an asset or disposal group to be classified as held for sale under IFRS 5, and what does 'committed to a plan to sell' actually mean?

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