CA Final · Financial Reporting

Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations: formula sheet

Full chapter guide

Key formulas

Measurement rule on classification: Carrying amount after classification = Lower of (carrying amount, fair value less costs to sell); Applies to assets and disposal groups held for sale, except the excluded assets. Do not depreciate once classified as held for sale.
Fair value less costs to sell: Fair value less costs to sell = Fair value (Ind AS 113) − Costs to sell; Costs to sell are incremental and directly attributable. Finance costs and income tax expense are not included.
Assets excluded from Ind AS 105 measurement rules: Deferred tax assets; employee benefit assets; financial assets under Ind AS 109; non-current assets at fair value under Ind AS 40; non-current biological assets at fair value less costs to sell under Ind AS 41; insurance contract rights under Ind AS 117; Excluded from measurement only. Classification and presentation rules can still apply.
Disposal group: Disposal group = Group of assets disposed of together in one transaction + liabilities directly associated that are transferred in that transaction; Can include current assets and liabilities. Goodwill is included where applicable.
Component of an entity: Component = Operations and cash flows clearly distinguishable, operationally and for financial reporting, from the rest of the entity; Usually a cash-generating unit or a group of such units.
Held for sale: core conditions: Available for immediate sale in present condition AND sale highly probable; Both must be met at the date of classification. Failing either one means the asset stays in its normal category.
Highly probable: requirements: Management committed + active programme to find a buyer + actively marketed at a reasonable price + plan unlikely to change + completed sale expected within 1 year (separate requirement in para 8, subject to the exceptions); Treat these as the tests for a highly probable sale. The one-year expectation is a distinct requirement and is subject to the extension exceptions in Appendix B, so it is not absolute. Price is judged against current fair value, not the carrying amount.
One-year limit: Completed sale expected within 12 months of classification; The period can be extended only if the delay fits one of the three exceptions in Appendix B (see below) and the entity remains committed to its plan to sell.
Exceptions to the one-year limit: (a) at the commitment date the entity reasonably expects others to impose conditions that will extend the period, it cannot act on them until a firm purchase commitment exists, and that commitment is highly probable within one year; (b) after a firm purchase commitment, the buyer or others unexpectedly impose conditions that extend the period, the entity takes timely action, and a favourable resolution is expected; (c) circumstances previously considered unlikely arise during the initial one-year period, the asset is not sold, the entity responded to the circumstances, and the asset is being actively marketed at a price reasonable given the change in circumstances; Evidence of commitment to the plan is needed in all three cases. Be ready to quote the idea, not the exact words.
Held for distribution to owners: Committed to distribute + available for immediate distribution in present condition + distribution highly probable (actions initiated, completion expected within one year of classification, significant change or withdrawal unlikely); Where owners' approval is required, its probability is considered in judging whether the distribution is highly probable. The tests mirror those for held for sale, with distribution replacing sale.
Abandonment: Asset to be abandoned is NOT held for sale; Its carrying amount is recovered through use until disposal. Depreciation continues, and useful life and residual value are reviewed to reflect the shorter life. A plant that is a separate major line of business or geographical area is presented as a discontinued operation only when it is actually abandoned. A single plant does not qualify on its own.
Measurement rule: Measure at the lower of: (a) carrying amount and (b) fair value less costs to sell; Applies on classification and at each later reporting date while held for sale.
Fair value less costs to sell: FVLCTS = Fair value (Ind AS 113) − Incremental costs directly attributable to the disposal; Costs to sell exclude finance costs and income tax expense. If sale is expected beyond one year, costs to sell are measured at present value and the unwinding is a finance cost.
Impairment loss on classification: Loss = Carrying amount − FVLCTS (if positive); Recognised in profit or loss, including for a disposal group after remeasuring out-of-scope items.
Allocation of loss within a disposal group: Reduce goodwill first, then other non-current assets within Ind AS 105 measurement scope pro rata to their carrying amounts; Do not allocate to assets outside the measurement scope or to liabilities. Do not reduce an asset below its own FVLCTS if that is determinable.
Reversal limit: Gain recognised ≤ Cumulative impairment losses recognised earlier on those assets, excluding the goodwill portion, which cannot be reversed; A gain does not restore goodwill impairment. It is allocated to in-scope non-current assets other than goodwill.
Depreciation: Depreciation from date of classification = Nil; Applies to non-current assets held for sale and to those in a disposal group.
Reclassification out of held for sale: Lower of: (a) carrying amount before classification, adjusted for any depreciation, amortisation or revaluation that would have been recognised had the asset not been classified, and (b) recoverable amount at date of decision not to sell; Adjustment is recognised in profit or loss from continuing operations.
Discontinued operation test: Component of entity AND (disposed of OR held for sale) AND (separate major line of business or geographical area OR part of a single plan to dispose of one OR subsidiary acquired only for resale); The entity must pass the component test, the disposed-of or held-for-sale test, and at least one of the three size/nature tests. Failing the size/nature tests means it is only a held-for-sale item or an ordinary disposal.
Single amount on face of statement of profit and loss: Post-tax profit or loss of discontinued operation + post-tax gain or loss on remeasurement to fair value less costs to sell or on disposal; Shown as one line. Analysis of revenue, expenses, pre-tax profit, tax and the gain or loss is given on the face or in notes.
Measurement on classification as held for sale: Lower of carrying amount and fair value less costs to sell; Any write-down is part of the discontinued operation result. Depreciation stops from the date of classification.
Comparatives: Re-present prior period statement of profit and loss for the discontinued operation; The balance sheet comparatives of assets held for sale are not re-presented.
Net cash flow disclosure: Operating, investing and financing cash flows of the discontinued operation; Disclose on the face of the cash flow statement or in the notes.
Earnings per share link: Show basic and diluted EPS for continuing and discontinued operations; Ind AS 33 requires this disclosure, either on the face or in the notes for the discontinued part.
Balance sheet presentation: Assets held for sale (one line) | Liabilities directly associated (one line) | No offsetting; Present separately from other assets and liabilities. Do not net the two lines against each other.
Comparatives rule: Prior-period balance sheet: not reclassified, not restated; Applies to balance sheet amounts for non-current assets or disposal groups classified as held for sale in the latest period.
Equity-linked amounts: Cumulative income or expense in OCI relating to the group: present separately; If any is recognised in OCI for assets held for sale, show it separately within equity.
Core note disclosures: Description + facts and circumstances (including expected manner and timing of disposal) + gain/loss and the statement of profit and loss caption that includes it + segment (if Ind AS 108 applies) + major classes of assets and liabilities (disposal group); Disclose in the period the asset is classified as held for sale or sold. The first four are the core note items to write every time. For a disposal group, also give the major classes of assets and liabilities, on the face or in the notes, except for a newly acquired subsidiary.
Change of plan: Plan to sell withdrawn: disclose facts and effect on results for the period and prior periods; Disclose in the period of the decision to change the plan.
Measurement of a held-for-sale asset or disposal group: Lower of (carrying amount, fair value less costs to sell); Same in Ind AS 105 and IFRS 5. It applies to assets within the measurement scope; deferred tax assets, employee benefit assets, financial assets within Ind AS 109 and insurance contract rights are measured under their own standards. Write this first when a question asks about a difference, to show what is common.
Measurement of an asset held for distribution to owners: Lower of (carrying amount, fair value less costs to distribute); Included in both Ind AS 105 and IFRS 5. Not a difference.
Impairment loss on classification: Carrying amount − (fair value − costs to sell), if carrying amount is higher; Recognised in profit or loss. Depreciation stops from the date of classification.
Investment property difference: Ind AS 40: cost model only → IFRS 5's fair-value-model exclusion is not relevant to Ind AS entities; Ind AS 105 does not itself differ here. IFRS allows the fair value model under IAS 40, and IFRS 5 excludes such property from its measurement rules. Ind AS 40 allows no fair value model, so the point is a consequence of Ind AS 40, not a distinct Appendix 1 difference. Investment property at cost is within the Ind AS 105 measurement rules.
Difference answer template: Ind AS 105 | IFRS 5 | Reason; State the Ind AS position, the IFRS position, and the reason, in one line each.

Quick revision

Held for sale means carrying amount will be recovered mainly through a sale, not continuing use.
The asset must be available for immediate sale in its present condition and the sale must be highly probable.
Highly probable needs management commitment, an active programme, a reasonable price and an expected completion within one year, with limited exceptions for delays outside the entity's control.
Measure at the lower of carrying amount and fair value less costs to sell.
Stop depreciation and amortisation once an asset is classified as held for sale.
Recognise an impairment loss for any write-down to fair value less costs to sell. Recognise a gain for any later increase in fair value less costs to sell, but not in excess of the cumulative impairment loss recognised earlier (under Ind AS 105 or Ind AS 36). Any gain or loss not previously recognised is recognised on the date of derecognition.
Present held for sale assets and related liabilities separately in the balance sheet, without offsetting them.
A discontinued operation is a component that has been disposed of or is held for sale, and either is a separate major line of business or geographical area, or is part of a single plan to dispose of one, or is a subsidiary acquired exclusively with a view to resale.
Show a single amount on the face of the statement of profit and loss, comprising the post-tax profit or loss of discontinued operations plus the post-tax gain or loss on remeasurement to fair value less costs to sell, or on disposal, of the related assets or disposal group. Give the analysis of this amount in the notes or on the face.
Do not restate prior-period balance sheet amounts for held for sale classification, but restate comparative profit and loss for discontinued operations.
Assets held for distribution to owners follow similar classification rules, but are measured at the lower of carrying amount and fair value less costs to distribute.
If criteria are no longer met, reclassify and measure at the lower of carrying amount before classification (adjusted for depreciation, amortisation or revaluations that would have been recognised had it not been classified as held for sale) and recoverable amount at the date of the decision not to sell. Include any adjustment to the carrying amount in income from continuing operations.

Common mistakes

Saying excluded assets cannot be classified as held for sale at all. Fix: State that exclusions apply to measurement only. The asset is still presented separately if classified as held for sale.
Including finance costs or income tax in costs to sell. Fix: Include only incremental costs directly attributable to the disposal, such as legal fees and broker commission. Exclude finance costs and income tax expense.
Classifying an asset to be abandoned or closed down as held for sale. Fix: Ask how the value is recovered. Abandonment means recovery through use until disposal. Keep depreciating and do not classify as held for sale.
Classifying on the board's intention alone, without checking the other conditions. Fix: Commitment is only one indicator. Also check active marketing, a reasonable price, immediate availability and the one-year expectation.
Comparing carrying amount with fair value instead of fair value less costs to sell. Fix: Always deduct incremental selling costs first. Write FVLCTS on the page before you compare.
Continuing to charge depreciation on the asset while it is held for sale. Fix: Stop depreciation from the classification date. Only the pre-classification depreciation goes into carrying amount.
Treating every held-for-sale asset as a discontinued operation. Fix: Always run the size test. Selling one machine or a small unit is held for sale only, not discontinued.
Showing the pre-tax profit of the discontinued operation and the loss on remeasurement as separate lines on the face instead of one single amount. Fix: The single post-tax amount must be on the face. The detailed analysis may also be on the face, in a section identified as relating to discontinued operations and separate from continuing operations, or it may be given in the notes.
Offsetting held-for-sale assets against the associated liabilities and showing a net figure. Fix: Show two separate lines. The standard requires assets and liabilities to be presented separately from each other.
Restating the prior-year balance sheet to show the asset as held for sale. Fix: Remember the split. Balance sheet comparatives are not restated. Profit and loss comparatives for discontinued operations are re-presented.

Exam tips

In MCQs on exclusions, learn the list as: deferred tax, employee benefits, financial assets, fair-valued investment property and biological assets, insurance contract rights.
Always write that exclusions apply to measurement only, not to classification or presentation.
In costs to sell questions, strike out finance costs and tax first, then compute.
Use the exact definition wording for disposal group and component. Marks are often given for each element.
Link a component to discontinued operations in one line, since examiners test the two together.
In case MCQs, look for the trigger words: abandon, wind down, vacant, advertised, reasonable price, beyond control. Each points to a specific test.
Write answers as rule, facts, conclusion. Quote the two core conditions and then the indicators with case facts.
If a case shows a sale taking over a year, check for an exception before saying no. Look for conditions imposed by the buyer or others, or unforeseen events.