Measurement of Assets Held for Sale under Ind AS 105

Understand Measurement of Assets Held for Sale

Key rules to remember

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.

How to solve Measurement of Assets Held for Sale questions

1. 1Confirm the held-for-sale criteria are met and note the date of classification. Measurement under Ind AS 105 starts on that date.
2. 2Update the carrying amount to that date. Charge depreciation up to the classification date only. For a disposal group, first remeasure items outside Ind AS 105's measurement scope under their own standards.
3. 3Compute FVLCTS: fair value less incremental disposal costs. Ignore finance costs and tax.
4. 4Compare carrying amount with FVLCTS. If carrying amount is higher, the difference is the loss.
5. 5Allocate the loss for a disposal group: goodwill first, then pro rata to the carrying amounts of other in-scope non-current assets. Check no asset goes below its own FVLCTS if known.
6. 6At each later reporting date, remeasure. Any further fall is a loss. Any rise is a gain limited to cumulative losses to date. Charge no depreciation.
7. 7If a plan of sale changes, reclassify and apply the lower-of rule on the reclassification measure. Show adjustments in profit or loss from continuing operations.

Quickest way: Three-line check: carry, compare, cap

Common mistakes in Measurement of Assets Held for Sale

• Comparing carrying amount with fair value instead of fair value less costs to sell.

  Students remember 'lower of carrying amount and fair value' and drop the 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.

  The asset is still used in operations, so it feels like it should depreciate.

  Fix: Stop depreciation from the classification date. Only the pre-classification depreciation goes into carrying amount.

• Allocating an impairment loss pro rata to all assets and liabilities in a disposal group.

  Students copy the Ind AS 36 CGU method without the Ind AS 105 limits.

  Fix: Reduce goodwill first, then in-scope non-current assets pro rata. Leave out-of-scope assets (such as inventories or financial assets) and all liabilities alone.

• Reversing a gain above the cumulative impairment loss.

  Students treat the rise in FVLCTS as a revaluation upwards.

  Fix: Cap the gain at the cumulative losses recognised. Anything above that is not recognised.

• Reversing the goodwill part of an earlier loss.

  Students include all cumulative losses in the cap without checking where they were allocated.

  Fix: Goodwill impairment is never reversed. A gain goes to in-scope non-current assets other than goodwill.

• Measuring assets leaving held-for-sale at their carrying amount net of the Ind AS 105 write-down.

  Students forget the reclassification rule uses the pre-classification basis.

  Fix: Rebuild the amount the asset would have had without classification, including any depreciation, amortisation or revaluation that would have been recognised, then compare with recoverable amount.

Worked examples