4.2 Noncurrent Assets Held for Sale and Discontinued Operations
Though IFRS Accounting Standards and U.S. GAAP have similar guidance on
the accounting for noncurrent assets held for sale and for discontinued operations,
there is a special treatment for assets held for distribution under IFRS Accounting
Standards, as shown in the table below.
Topic
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IFRS Accounting Standards (IFRS 5)
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U.S. GAAP (ASC 360-10, ASC 205-20)
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Assets held for distribution to owners
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A long-lived asset to be distributed to owners
is measured at the lower of (1) the carrying amount and (2) the
fair value less the costs to distribute. Such assets are treated
in a manner similar to assets held for sale.
| ASC 360-10-45-15 states that a long-lived asset to be distributed to owners “shall continue to be classified as held and used until it is disposed of.” Therefore, it is measured at cost less accumulated depreciation and impairment. Accordingly, a disposal group to be spun off to shareholders would be classified as a discontinued operation earlier under IFRS Accounting Standards than under U.S. GAAP. |
Discontinued operations — definition
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As indicated in paragraph 32 of IFRS 5, “[a]
discontinued operation is a component of an entity that either
has been disposed of, or is classified as held for sale, and (a)
represents a separate major line of business or geographical
area of operations, (b) is part of a single co-ordinated plan to
dispose of a separate major line of business or geographical
area of operations or (c) is a subsidiary acquired exclusively
with a view to resale.”
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As indicated in ASC 205-20-45-1B and 45-1C, “the
disposal of a component of an entity or a group of components of
an entity [should] be reported in discontinued operations” if
(1) the assets (and liabilities) meet the criteria to be
classified as held for sale, have been sold, or have been
otherwise disposed of (e.g., abandonment) and (2) the disposal represents “a strategic shift that
has (or will have) a major effect on an entity’s operations and
financial results.”
Examples of such a strategic shift may include
the disposal of “a major geographical area, a major line of
business, a major equity method investment, or other major parts
of an entity.” In addition, under ASC 205-20-45-1D, a business
or nonprofit activity that meets the held-for-sale
classification criteria upon acquisition should be reported as a
discontinued operation regardless of whether its disposal would
represent a strategic shift or have a major effect on the
entity’s operations or financial results.
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Discontinued operations —presentation and disclosure
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In accordance with paragraph 40 of IFRS 5, an entity should not
“reclassify or re-present” the prior period(s) in a comparative
balance sheet to reflect the assets and liabilities of the
disposal groups classified as held for sale in the current
period.
IFRS does not require the disclosure of significant continuing
involvement with a discontinued operation after the disposal
date.
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If the criteria for discontinued-operations reporting are met,
the assets and liabilities of the disposal group must be
presented separately on the face of the balance sheet both in
the current period (if held for sale) and in prior periods. Even
a discontinued operation that is classified as held for sale and
sold in the same reporting period would be presented as held for
sale in the prior-period balance sheet.
An entity must disclose information about its significant
continuing involvement with a discontinued operation after the
disposal date. Such disclosures are required until the results
of operations of the discontinued operation are no longer
presented separately as discontinued operations in the income
statement.
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