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

Scope and Definitions under Ind AS 105 (CA Final Financial Reporting)

Updated 5 October 2026 · Fact-checked

Ind AS 105 sets the rules for classifying, measuring and presenting non-current assets (or disposal groups) held for sale, and for presenting discontinued operations. To solve questions, identify the asset or group, check whether it is excluded from the measurement rules, then apply the definitions: disposal group, component, costs to sell and fair value.

Understand Scope and Definitions under Ind AS 105

Ind AS 105 deals with two things. First, assets whose carrying amount will be recovered mainly through a sale, not through continued use. Second, the presentation of operations that have been disposed of or are held for sale. The aim is to show users which assets are about to leave the business and how the results of discontinued operations are reported.

Start with the scope. The classification and presentation requirements apply to all recognised non-current assets and to all disposal groups of an entity. The measurement requirements (lower of carrying amount and fair value less costs to sell, and stopping depreciation) apply to all of them except certain assets, which keep the measurement rules of their own standards. Those assets are: deferred tax assets (Ind AS 12), assets arising from employee benefits (Ind AS 19), financial assets within Ind AS 109, non-current assets measured at fair value under Ind AS 40, and non-current biological assets measured at fair value less costs to sell under Ind AS 41. Contractual rights under insurance contracts (Ind AS 117) are also excluded from the measurement rules.

Note the trap here. These excluded assets can still be classified as held for sale and presented separately. Only the measurement rules of Ind AS 105 do not apply to them. Also, assets held for sale and the liabilities of a disposal group held for sale are presented separately from other assets and liabilities in the balance sheet. Assets and liabilities are not offset. A non-current asset is classified as current only if it meets the Ind AS 1 definition of a current asset. Non-current assets classified as held for sale are not reclassified as current assets as such. They are presented separately from other assets in the balance sheet.

Now the key definitions. A current asset is one that meets the Ind AS 1 definition (expected to be realised or consumed in the normal operating cycle, held for trading, due within twelve months, or cash). A disposal group is a group of assets to be disposed of together in a single transaction, by sale or otherwise, along with the liabilities directly associated with those assets that will be transferred in the same transaction. Goodwill acquired in a business combination is included if the group is a cash-generating unit to which goodwill has been allocated, or is an operation within such a unit.

Costs to sell are the incremental costs directly attributable to the disposal, excluding finance costs and income tax expense. Fair value has the meaning in Ind AS 113. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component is usually a cash-generating unit or a group of them. This definition matters because a discontinued operation must be a component.

Key rules to remember

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.

How to solve Scope and Definitions under Ind AS 105 questions

Use this order for any scope or definition question on Ind AS 105. It keeps your answer in provision-facts-conclusion form.

1Identify what is being disposed of: a single non-current asset, a group of assets with liabilities, or an operation.
2Check the scope. Decide whether the item is a non-current asset or a disposal group covered by the standard.
3Check the exclusions. If the asset is a deferred tax asset, employee benefit asset, Ind AS 109 financial asset, fair-valued investment property or biological asset, or insurance contract right, state that the Ind AS 105 measurement rules do not apply to it.
4Apply the definitions. Test whether the items form a disposal group (single transaction, directly associated liabilities) and whether there is a component (clearly distinguishable operations and cash flows).
5If the question asks for measurement, compute fair value less costs to sell, excluding finance costs and tax from costs to sell.
6Compare with carrying amount and take the lower. State that depreciation stops.
7Write the conclusion clearly in one line, naming the paragraph logic: scope, exclusion, definition, result.

Quickest way: Three-question scope check

When to use it: Use when a case scenario lists several assets and asks which are covered by Ind AS 105 measurement or which qualify as a disposal group.

Ask: is the asset on the exclusion list? If yes, measurement rules of Ind AS 105 do not apply.
Ask: will the items go in one transaction? If yes, treat them as one disposal group along with directly associated liabilities.
Ask: can the operation be distinguished clearly in operations and cash flows? If yes, it is a component.

Common mistakes in Scope and Definitions under Ind AS 105

Saying excluded assets cannot be classified as held for sale at all.
Students merge the classification rules with the measurement rules.
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.
Students treat all disposal-related outflows as 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.
Leaving out directly associated liabilities from a disposal group.
Students think only assets are disposed of.
Fix: Include liabilities that will be transferred in the same transaction, and show the group's assets and liabilities separately in the balance sheet.
Treating any single asset or product line as a component.
Students ignore the requirement for clearly distinguishable operations and cash flows.
Fix: Test for operational and financial reporting distinction, usually a cash-generating unit or group of units, before calling it a component.
Using the old AS term or another standard's definition of fair value.
Mixing the old AS 24 and Ind AS 113 definitions.
Fix: Use fair value as defined in Ind AS 113 and refer to Ind AS only.

Worked examples

Example 1

Meridian Ltd, an Ind AS company, has decided to sell the following items. (a) A deferred tax asset of ₹40 lakh relating to the unit to be sold. (b) Plant with carrying amount ₹90 lakh. (c) Investment property carried at fair value under Ind AS 40, ₹2 crore. (d) Trade receivables, a financial asset under Ind AS 109, ₹30 lakh. Which items are subject to the measurement requirements of Ind AS 105?

Show the solution

Provision: Ind AS 105 measurement rules (lower of carrying amount and fair value less costs to sell) apply to non-current assets and disposal groups, except listed items.
Item (a): a deferred tax asset falls under Ind AS 12. It is excluded from the measurement rules.
Item (c): investment property measured at fair value under Ind AS 40 is excluded from the measurement rules.
Item (d): a financial asset within Ind AS 109 is excluded from the measurement rules.
Item (b): plant is a non-current asset with no exclusion. The measurement rules apply to it.

Answer: Only the plant (item b) is subject to the Ind AS 105 measurement requirements. Items (a), (c) and (d) continue under their own standards, though they may still be classified and presented as held for sale where criteria are met.

Example 2

Kavya Ltd decides to sell its textile division in a single transaction. The division has plant with carrying amount ₹5,00,000, inventory ₹1,50,000 and liabilities directly related to it of ₹2,00,000 that the buyer will take over. Inventory is already carried at the lower of cost and net realisable value under Ind AS 2. The fair value of the division as a disposal group, net of the liabilities the buyer takes over, is ₹4,00,000. The estimated costs to sell the group are ₹20,000, of which ₹5,000 is interest on a loan taken for the sale. The plant is the only non-current asset in the group within the Ind AS 105 measurement requirements. The division is a separate cash-generating unit with distinct operations and cash flows. Identify the disposal group and component, and compute the measurement.

Show the solution

Disposal group: the plant, inventory and the ₹2,00,000 directly associated liabilities, all going in one transaction.
Component: the division is a cash-generating unit with distinguishable operations and cash flows, so it is a component.
Measurement order: first remeasure the assets and liabilities that are not within the Ind AS 105 measurement scope under their own standards. Inventory is under Ind AS 2 and is already at the lower of cost and net realisable value, so it stays at ₹1,50,000. Then measure the disposal group as a whole at the lower of its carrying amount and fair value less costs to sell.
Carrying amount of the group (net) = ₹5,00,000 + ₹1,50,000 − ₹2,00,000 = ₹4,50,000.
Costs to sell: exclude finance costs. The interest of ₹5,000 is excluded, so costs to sell = ₹20,000 − ₹5,000 = ₹15,000.
Fair value less costs to sell of the group = ₹4,00,000 − ₹15,000 = ₹3,85,000.
Lower of ₹4,50,000 and ₹3,85,000 is ₹3,85,000. Write-down = ₹4,50,000 − ₹3,85,000 = ₹65,000, recognised as an impairment loss.
Allocation: the loss reduces only the non-current assets within the Ind AS 105 measurement scope. Here that is the plant, so the plant is written down from ₹5,00,000 to ₹4,35,000. Inventory is not reduced. Depreciation on the plant stops.

Answer: The plant, inventory and ₹2,00,000 liabilities form a disposal group, and the division is a component. The group's net carrying amount of ₹4,50,000 is written down to its fair value less costs to sell of ₹3,85,000, an impairment loss of ₹65,000, which is charged against the plant (new carrying amount ₹4,35,000). Inventory stays at ₹1,50,000 under Ind AS 2. The group's assets and liabilities are presented separately in the balance sheet.

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.

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

Scope and Definitions under Ind AS 105: frequently asked questions

What is a disposal group under Ind AS 105?

It is a group of assets to be disposed of together in a single transaction, with the liabilities directly associated with them that will be transferred in the same transaction. It can include current assets and liabilities, and goodwill where relevant.

Which assets are excluded from the measurement requirements of Ind AS 105?

Deferred tax assets, assets from employee benefits, financial assets within 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, and contractual rights under insurance contracts. They are measured under their own standards.

What is a component of an entity?

It is part of an entity whose operations and cash flows can be clearly distinguished, operationally and for financial reporting, from the rest of the entity. It is usually a cash-generating unit or a group of such units.

What are costs to sell?

They are the incremental costs directly attributable to disposing of an asset or disposal group. Finance costs and income tax expense are excluded.