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.