Non-current assets held for sale accounting recognition are regulated in IFRS 5.
This standard determines that the assets can be analyzed and classified as held for sale individually or jointly.
That is, an entity can make available a business line as such made up of inventories, intangibles, plant properties and equipment, and investments, among other assets.
Or also can individually dispose of these assets.
Remember that all the requirements regulated in paragraph 7 of IFRS 5 must be met so that non-current assets can be classified as held for sale.
In the following article, you can expand the information about the accounting recognition of non-current assets held for sale.
However, we will only focus on the impairment recognition of this type of asset in this opportunity.
The accounting recognition of impairment in non-current assets held for sale has two moments in the time.
Before classifying assets as held for sale:
After the assets are classified as held for sale:
IFRS 5 determines that once the assets have been classified as held for sale, whether they are impaired at the end of the reporting period will be checked.
For this, the company must compare the fair value less costs to sell versus their carrying amount.
If the carrying amount is higher than its recoverable amount, it will be necessary to recognize an impairment loss.
It is important to say that this occurs once the assets meet all the requirements of paragraph 7 of IFRS 5 and have been classified as held for sale.
However, before such classification, whether the assets group presents impairment must be verified.
Said impairment analysis is made based on the standard applicable to each type of asset that makes up the assets group.
That is, if there are inventories, biological assets, or accounts receivable, for example, an entity must review the IAS 2, the IAS 41, or the IFRS 9, respectively.
Before classification as held for sale
As we said before, in IFRS 5, specifically in paragraph 19, it is determined once a company decides to classify an asset or group of assets as held for sale, it must review whether they are impaired.
However, the review of such impairment must be carried out, considering the standard that applies to each asset that makes up the group of assets expected to be sold.
For example, an entity decides to sell a business line.
This line consists of inventories and property, plants, and equipment.
The entity’s management performs the inventory impairment test under IAS 2.
The company concludes that the net realizable value of some assets is below their carrying amount, and therefore it proceeds to recognize an impairment loss.
Likewise, it also makes the impairment check over the property, plant, and equipment, resulting in a loss on these assets.
Once the entity has completed this step, it can classify the assets as held for sale.
After classification as held for sale
Once the business line has been classified as held for sale at the end of the reporting period, whether its fair value less costs to sell are below its carrying amount must be established.
If so, the entity shall recognize an impairment loss.
This impairment must be recognized under paragraphs 104 to 122 of IAS 36.
In other words, in the same way that an impairment loss of a cash-generating unit
If you want to expand the information related to the concept of a cash-generating unit, I invite you to read the following article.
What is established in paragraphs 104 and 105 of IAS 36 is that when an impairment loss occurs, it must be allocated to assets in the following order.
The impairment should first be applied to any existing goodwill in the business line.
If, when applying said impairment, there is a remaining impairment, this will be attributed to the assets that make up the business line within the scope of IFRS 5.
For a better understanding, we will use the same example seen previously.
In other words, a company that intends to sell a business line made up of inventories and property, plant, and equipment.
In this case, the impairment generated will be charged first to any existing goodwill.
And the remaining balance will charge to the carrying amount of property, plant, and equipment but not to inventory since this type of asset is outside IFRS 5.
Similarly, an entity should not recognize an impairment loss for assets outside paragraph 7 of IFRS 5.
Example of impairment of assets held for sale
An entity intends to sell a business line, the carrying amount at the end of the reporting period of the group of assets that make up the line is as follows:
The properties of the plant and equipment are measured in their subsequent measurement with the revaluation model.
At the end of the accounting period, the revalued amount decreased by 20,000.
Thus, the new carrying amount went from 85,000 to 65,000.
Regarding inventories, the company recognizes impairment of 6,000.
That is, the new carrying amount is equal to 69,000.
The new carrying amount of the business line before classification as held for sale is shown below:
After an analysis carried out by the company, it is determined that the fair value less costs to sell the business line is equal to 125,000.
The company recognizes the business line at the lowest of its carrying amount or its fair value less costs to sell.
In this way, the entity must recognize an impairment loss of 31,000 (156,000 – 125,000).
Said impairment loss must be distributed to non-current assets for which the measurement requirements of IFRS 5 apply.
In other words, only to property, plant, and equipment, but not to the inventories.
This impairment, as mentioned above, must be distributed under paragraphs 104 and 105 of IAS 36.
The distribution of impairment is as follows:
As a first measure, impairment will reduce any amount of goodwill recognized to date.
After this, the residual impairment value of 9,000 will be distributed to the rest of the assets based on proportionality based on the carrying amounts of those assets.