Financial Reporting · Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations

Classification as Held for Sale or Held for Distribution (Ind AS 105)

Updated 5 October 2026 · Fact-checked

Under Ind AS 105, a non-current asset or disposal group is held for sale when its carrying amount will be recovered mainly through sale, not use. It must be available for immediate sale in present condition, and the sale must be highly probable, normally completed within one year. Held for distribution applies the same tests to distribution to owners.

Understand Classification as Held for Sale or Held for Distribution

Most non-current assets earn their value by being used over many years. Some are different. Management decides to sell them, and the benefit will come mainly from the sale price. Ind AS 105 gives these assets separate treatment so that users can see what is leaving the business.

A disposal group is a group of assets to be disposed of together in a single transaction, along with the liabilities directly associated with them. A cash-generating unit to which goodwill is allocated can be a disposal group. The classification tests apply to the group as a whole.

An asset or disposal group is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than continuing use. Two core conditions must both be met. First, it must be available for immediate sale in its present condition, subject only to terms that are usual and customary for such sales. Second, the sale must be highly probable.

For a sale to be highly probable, the appropriate level of management must be committed to a plan to sell. An active programme to locate a buyer and complete the plan must have started. The asset must be actively marketed at a price reasonable in relation to its current fair value. Actions required to complete the plan must show that significant changes to the plan or its withdrawal are unlikely.

Paragraph 8 adds a distinct requirement: the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. This is separate from the indicators above. It is subject to the extension exceptions in Appendix B.

The same logic applies to held for distribution to owners, for example a dividend in specie. The entity must be committed to distribute, and the asset must be available for immediate distribution in its present condition. The distribution must be highly probable. For that, actions to complete it must have been initiated and it should be expected to be completed within one year from the date of classification. The actions required should show that significant changes or withdrawal are unlikely. Where owners' approval is required, the probability of that approval is considered in judging whether the distribution is highly probable.

Assets to be abandoned or wound down are not held for sale, because their value is not recovered through sale. They continue to be used until disposal, so classification as held for sale is not allowed.

Key rules to remember

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.

How to solve Classification as Held for Sale or Held for Distribution questions

Use this checklist on any case question. Write the conclusion for each test with the fact from the case that supports it.

1Identify what is being disposed of: a single asset, a disposal group, or a whole operation. Check it is a non-current asset or group, within the scope of the standard.
2Identify the mode of recovery. If the value will come mainly from sale, continue. If the asset is to be abandoned, wound down or used until the end of its life, stop. It is not held for sale.
3Test availability for immediate sale in present condition. Look for conditions such as repairs needed, or approvals that are not usual and customary.
4Test each highly probable indicator: management commitment at the right level, active marketing, reasonable price, and plan unlikely to change. Then test the separate requirement that the sale is expected to be completed within one year.
5Apply the one-year rule. If more than one year is expected, check whether the facts fit one of the three exceptions in Appendix B and whether the entity is still committed to its plan.
6Decide the date of classification. Classification is made on the date the last criterion is first met, and all criteria, including availability, must be met at that date. If the criteria are met only after the reporting period but before the financial statements are approved for issue, the asset is not classified as held for sale in those statements, and the facts are disclosed under para 12.
7State the conclusion in plain words, then add the consequence: separate presentation and measurement at lower of carrying amount and fair value less costs to sell, with depreciation stopping.

Quickest way: Three-gate test

When to use it: Use it for MCQs and short case scenarios where you must say yes or no on classification in under two minutes.

Gate 1: Is it recovered through sale (or distribution), not use or abandonment? If no, stop.
Gate 2: Is it available now in present condition? If major work or non-customary conditions remain, stop.
Gate 3: Is the sale highly probable, with buyer search, reasonable price and completion in one year? If it will take longer, classification can continue only if an Appendix B exception fits and commitment remains.
If all three gates pass, classify at that date. Give the consequence in one line: stop depreciation and measure at the lower of carrying amount and fair value less costs to sell.

Common mistakes in Classification as Held for Sale or Held for Distribution

Classifying an asset to be abandoned or closed down as held for sale.
Students see that the asset will leave the business and assume it is the same as a 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.
A board resolution looks like proof of commitment.
Fix: Commitment is only one indicator. Also check active marketing, a reasonable price, immediate availability and the one-year expectation.
Treating the one-year limit as a hard cut-off.
The rule is remembered as a plain 12-month rule.
Fix: Remember that the period can be extended when the facts fit one of the three exceptions in Appendix B and the entity remains committed. Name the exception and the evidence in the case.
Ignoring that the asset must be available in its present condition.
Students focus on the buyer and price only.
Fix: If the entity must still complete major work or the sale needs conditions beyond usual practice, it fails the immediate availability test.
Judging the price against the carrying amount instead of fair value.
Carrying amount is the number given in most questions.
Fix: A reasonable price is judged against current fair value. An asking price far above fair value suggests the sale is not highly probable.
Forgetting held for distribution to owners exists.
The topic title is read as held for sale only.
Fix: Apply the same tests to distribution to owners, such as a dividend in specie, and say so in your answer.

Worked examples

Example 1

On 1 January 2027, the board of A Ltd decided to sell a factory building and approved a plan. The building is vacant and ready for handover. Brokers were engaged and an advertisement was published on 20 January 2027 at a price close to its fair value. Two buyers are negotiating. The company expects to complete the sale by October 2027. Can A Ltd classify the building as held for sale at 31 March 2027?

Show the solution

Mode of recovery: the building is vacant and will be sold, so its carrying amount will be recovered through sale, not use.
Availability: it is vacant and ready for handover in its present condition, so the immediate availability test is met. This was true from 1 January 2027, but it does not make the sale highly probable on its own.
Highly probable: the board is committed, an active programme to find a buyer started with brokers and advertisement, and the price is close to fair value, which is reasonable.
Timing: the expected completion in October 2027 is within one year of the classification date, which is a separate requirement and is met.
Date: the board's commitment and the building's availability existed on 1 January 2027, but they did not suffice on their own. The advertisement on 20 January 2027 began active marketing at a reasonable price. All criteria are therefore met by 20 January 2027, and classification starts on that date. It is before the reporting date, so the classification holds at 31 March 2027.

Answer: Yes. A Ltd can classify the building as held for sale from 20 January 2027, when the advertisement began active marketing and all criteria were met. It stops depreciation from that date and measures it at the lower of carrying amount and fair value less costs to sell, presented separately in the balance sheet at 31 March 2027.

Example 2

B Ltd plans to shut down a plant on 31 December 2027 and will stop using it then. The plant will be scrapped with no sale planned. On 31 March 2027, the management proposes to classify it as held for sale because the board has approved the closure. Advise.

Show the solution

Identify the mode of recovery: the plant will be used until closure and then scrapped. No buyer or sale is planned.
Apply the rule: carrying amount is recovered through use, not through sale. An asset to be abandoned is not held for sale.
Check the board approval: commitment to closure does not meet the sale criteria, since no sale is planned.
Consequence: the plant stays in property, plant and equipment, and depreciation continues. Its useful life and residual value are reviewed to reflect the shorter life to closure.
Later view: a discontinued operation presentation is possible only when the plant is actually abandoned, and only if it represents a separate major line of business or geographical area. A single plant does not qualify on its own.

Answer: B Ltd should not classify the plant as held for sale. It continues as property, plant and equipment with depreciation over the shortened period until closure.

Exam tips

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.
Mention held for distribution to owners whenever the case has a dividend in specie or a demerger-like distribution.
Always add the consequence in one line: separate presentation and no further depreciation. It earns easy marks.

Practice questions from Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations

Classification as Held for Sale or Held for Distribution in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Classification as Held for Sale or Held for Distribution: frequently asked questions

What are the conditions for held for sale under Ind AS 105?

The asset or disposal group must be available for immediate sale in its present condition, subject to usual and customary terms. The sale must also be highly probable. Management must be committed, a buyer search must be active, the price reasonable and completion expected within one year, subject to the extension exceptions.

Can classification continue if the sale takes more than one year?

Yes, in limited cases. The delay must fit one of the three exceptions in Appendix B, and the entity must remain committed to its plan to sell. They cover conditions imposed by others or by the buyer, and circumstances previously considered unlikely that arise during the first year.

What is the difference between held for sale and held for distribution to owners?

Held for sale means the carrying amount will be recovered mainly through a sale. Held for distribution means the entity will give the asset to its owners, for example as a dividend in kind. The classification tests are the same, with distribution replacing sale.

Can an asset to be abandoned be classified as held for sale?

No. An abandoned asset is recovered through use until disposal, not through a sale. It stays in its normal category and keeps being depreciated.