Non Current Asset Held for Sale

� PFRS 5, paragraph 6, provides that a noncurrent

asset or disposal group is classified as held for sale
if the carrying amount will be recovered
principally through a sale transaction rather
through continuing use.
 Conditions for classification as
held for sale
1. The asset or disposal group is available
for Immediate sale in the present
condition subject only to terms that are
usual and customary for sale of such
assets or disposal group.
2. The sale must be highly probable.
 Definition of highly probable
1. Management must be committed to a plan to sell the
asset or disposal group.
2. An active program to locate a buyer and complete the
plan must have been initiated.
3. The sale is expected to be a completed sale within one
year from the date of classification as held for sale.
4. The asset or disposal group must be actively marketed
for sale at a sale price that is reasonable in relation to
the fair value.
5. Actions required to complete the plan indicate that it is
unlikely that the plan will be significantly changed or
withdrawn.
 Measurement of noncurrent asset
held for sale
PFRS 5, paragraph 15, provides that an
entity shall measure a noncurrent asset
or disposal group classified as held for
sale at the lower of carrying amount or
fair value less cost of disposal. PFRs 5,
paragraph 25, further provides that a
noncurrent asset classified as held for
sale shall not be depreciated.
Write down to Fair value less cost
of disposal
If the fair value less cost of disposal is lower
than carrying amount of the asset or disposal
group, the writedown to fair value less cost of
disposal is treated as an impairment loss.
If the noncurrent assets is a disposal group, the
impairment loss is apportioned across the asset
based on carrying amount after writing off any
goodwill first.
 Subsequent Increase In Fair
Value
If subsequently there is an increase in
the fair value less cost of disposal,
PFRS 5, paragraph 21 provides that an
entity shall recognize a gain but not in
excess of any impairment loss
previously recognized.
 Revalued Asset classified as
held for sale
PFRS 5, paragraph 18, provides that when an entity
adopts the revaluation model for the measurement of
assets , any asset classified as held for sale should be
revalued to fair value immediately prior to the
classification as held for sale. The additional
revaluation surplus is equal to the fair value at the
classification date less the carrying amount at that date.
Any cost of disposal at classification date should be
recognized as impairment loss for the period and
deducted from the asset held for sale.
 Abandoned noncurrent asset
An entity shall not classify as held for
sale a non current asset or disposal
group that is to be abandoned.
This is because the carrying amount
will be recovered principally through
continuing use or the noncurrent asset
is to be used until the end of its
economic life.
 Change in Classification
The entity shall measure the noncurrent asset that
ceases to be classified as held for sale at the lower
of :
a. Carrying amount before the asset was
classified as held for sale adjusted for any
depreciation or amortization that would have
been recognized if the asset had not been
classified as held for sale.
b. Recoverable amount at the date of the
subsequent decision not to sell.
Presentation of Noncurrent
Asset Classified as Held for
Sale
A noncurrent asset that is already classified
as held for sale shall be presented
separately as current asset.
If the noncurrent asset is a disposal group
classified as held for sale, the assets and
liabilities of the group shall be presented
separately and cannot be offset as a single
amount.
 Discontinued Operation
�It is defined as 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 coordinated plan to dispose of
a separate major line of business or
geographical area of operations.
c. Is a subsidiary acquired exclusively with a view
to resale.
 Timing of reporting as
discontinued operation
a. When the entity has actually disposed of the
operation.
b. When the operation meets the criteria to be
classified as held for sale.
PFRS 5, par 12, prohibits the retroactive
classification as a discontinued operation when
the discontinued criteria are met after the end of
the reporting period.
 Component of an entity
It maybe a subsidiary, a major line of business or
geographical segment whose operations and cash
flows can be clearly distinguished, operationally
and for financial reporting purposes, from the rest
of entity.
Assets, liabilities, income and expenses are
directly attributable to the component if they
would be eliminated when the component is
disposed of.
Income Statement Presentation
An entity shall disclose a single amount
comprising the total of post-tax profit or loss of
the discontinued operation and the post-tax gain
or loss recognized on the measurement to fair
value less cost of disposal or on the disposal of
the assets or disposal group constituting the
discontinued operation. The income or loss from
discontinued operation, net of tax, shall be
presented as a single amount in the income
statement below the income from continuing
operations.
 Statement of Financial Position
presentation
The entity shall present separately on the face of the
statement of financial position the following information:
a. Assets of the component held for sale separately from
all other assets.
b. Assets of the component held for sale are measured at
the lower of fair value less cost of disposal and their
carrying amount.
c. Liabilities of the component separately from all other
liabilities.
d. Non depreciation-noncurrent assets of the component
held for sale shall not be depreciated.
Change in Accounting Estimate
PAS 8, par 5, defines a change in
accounting estimate as an adjustment of
the carrying amount of an asset or a
liability, or the amount of the periodic
consumption of an asset that results
from the assessment of the present
status and expected future benefit and
obligation associated with the asset
and liability.
 Examples of Accounting estimate
a. Doubtful accounts
b. Inventory obsolescence
c. Useful life, residual value, and expected
pattern of consumption of benefit of
depreciable asset
d. Warranty cost
e. Fair value of financial assets and liabilities
 How to report a change in
accounting estimate
The effect of a change in accounting estimate shall be
recognized currently and prospectively by including in its
income or loss of:
a. The period of change if the change affects that period
only.
b. The period of change and future periods if the
change affects both.
Prospective recognition of the effect of a change in
accounting estimate means that the change is applied to
transactions , other events and conditions from the date of
change in estimate.
 Change in Accounting policy
Accounting policies- the specific principles , bases,
conventions, rules and practices applied by an entity
in preparing and presenting financial statements.
A change in accounting policy shall be made only
when:
a. Required by an accounting standard or an
interpretation of the standard.
b. The change will result in more relevant and
faithfully represented information about the
financial position, financial performance and
cash flows of the entity.
 Examples of change in accounting
policy
a. Change in the method of inventory pricing from the
FIFO to weighted average method.
b. Change in the method of accounting for long term
construction contract from cost recovery method to
percentage of completion method.
c. The initial adoption of policy to carry assets at
revalued amount is a change in accounting policy to
be dealt with as revaluation in accordance with PAS
16.
.
Examples of change in accounting
policy

d. Change from cost model to fair value

model in measuring investment property.
e. Change to a new policy resulting from the
requirement of a new PFRS.
 The following are not change in
accounting policy
a. The application of an accounting policy for
events or transaction that differ in substance
from previously occurring events or
transaction.
b. The application of a new accounting policy
for events or transaction which did not occur
previously or that were immaterial.
 How to report a change in
accounting policy
A change in accounting policy required by a
standard or an interpretation shall be applied in
accordance with the transitional provision
therein.
If the standard or interpretation contains no
transitional provision or if an accounting policy
is changed shall be applied restropectively or
retroactively.
 Retrospective application
It is applying a new accounting policy to
transaction, other events and conditions as if that
policy had always been applied.
Simply stated retrospective application means
that any resulting adjust from the change in
accounting policy shall be reported as an
adjustment to the opening balance of retained
earnings.
The amount of the adjustment is determined as of
the beginning of the year of change.
 Change in reporting entity
A change in reporting entity is a change whereby
entities change their nature and report their
operations in such a way that the financial
statement are in effect those of a different
reporting entity.
A change in reporting entity is actually change in
accounting policy and therefore shall be treated
retrospectively or retroactively to disclose what
the statements would have looked like if the
current entity had been existence in the prior year.
 Prior period errors
Prior period errors are omissions and misstatements in the
financial statement for one or more periods arising from a failure
to use or misuse of reliable information that:
a. Was available when financial statements for those periods
were authorized for issue.
b. Could reasonably be expected to have been obtained and taken
into account in the preparation and presentation of those
financial statements.
Errors may occur as a result of mathematical mistakes, mistakes in
applying accounting policies, misinterpretation of facts, fraud or
oversight.
 How to treat prior period errors
Prior period errors shall be corrected
retrospectively by adjusting the opening balances
of retained earnings and affected assets and
liabilities.
If comparative statements presented, the financial
statements of the prior shall be restated so as to
reflect the retroactive application of the prior
period errors as a retrospective restatement.