Ifrs 5 Acca Answers

IFRS 5
IFRS 5
2016 Dec 3 B
The non-current assets of Resource should have been presented as held for sale in the financial
statements, in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, as at 31 August 2016. IFRS 5 states that the appropriate level of management must
be committed to a plan to sell the asset for the sale to be probable. Evolve’s acceptance of a
binding offer in August 2016 and the publication of this information indicated a high probability
of sale. Despite the uncertainties surrounding the sale, the transaction remained highly probable
at 31 August 2016. IFRS 5 requires an entity to classify a non-current asset as held for sale if its
carrying amount will be recovered principally through sale rather than through continuing use.
IFRS 5 does not require the existence of a binding sales agreement in order to classify a non-
current asset as held for sale but only a high probability of its occurrence. The acceptance of an
offer by Evolve indicates that the transaction met the criteria to be classified as held for sale at 31
August 2016. The finalisation of the agreement on 20 September 2016 only confirmed the
situation existing at 31 August 2016. Further, Evolve cannot apply IFRS 5 measurement criteria
without classifying the item as held for sale in its statement of financial position particularly as a
profit or impairment may arise when using such criteria. IFRS 5 also states that immediately
before the initial classification of the asset as held for sale, the carrying amount of the asset
should be measured in accordance with applicable IFRSs. This was already the case as regards
the non-current assets of Resource. Other criteria which indicate that the non-current assets
should be shown as held for sale include the fact that a buyer for the non-current assets has been
found, the sale occurred within 12 months of classification as held for sale, the asset was actively
marketed for sale at a sales price which has been accepted, and despite the uncertainties at 31
August 2016, events after the reporting period indicate that the contract was not significantly
changed or withdrawn. The fact that the information regarding the uncertainties was not publicly
disclosed is irrelevant. Thus as the non-current assets met the criteria to be classified as held for
sale, they should have been measured and presented as such in the financial statements. Assets
classified as held for sale must be presented separately on the face of the statement of financial
position.
2018 Sep 2 a
Sale of Newall
The disposal of Newall appears to meet the held for sale criteria. Management has shown
commitment to the sale by approving the plan and reporting it to the media. A probable acquirer
has been found in Oldcastle, the sale is highly probable and expected to be completed six
months after the year end, well within the 12-month criteria. Newall would be treated as a
disposal group since a single equity transaction is the most likely form of disposal. Should
Newall be deemed to be a separate major component of business or geographical area of the
group, the losses of the group should be presented separately as a discontinued operation within
the consolidated financial statements of Farham. Assets held for sale are valued at the lower of
carrying amount and fair value less costs to sell. The carrying amount consists of the net assets
and goodwill relating to Newall less the non-controlling interest’s share. Assets within the
disposal group which are not within the scope of IFRS 5 Assets Held for Sale and Discontinued
Operations are adjusted for in accordance with the relevant standard first. This includes leased
assets and it is highly likely that the leased asset deemed surplus to requirements should be
written off with a corresponding expense to profit or loss. Any further impairment loss
recognised to reduce Newall to fair value less costs to sell would be allocated first to goodwill
and then on a pro rata basis across the other non-current assets of the group. The chief operating
officer is wrong to exclude any form of restructuring provision from the consolidated financial
statements. The disposal has been communicated to the media and a constructive obligation
exists. However, only directly attributable costs of the restructuring should be included and not
ongoing costs of the business. Future operating losses should be excluded as no obligating event
has arisen and no provision is required for the impairments of the owned assets as they would
have been accounted for on remeasurement to fair value less costs to sell. The legal fees and
redundancy costs should be provided for. The early payment fee should also be provided for
despite being a future operating loss. This is because the contract is onerous and the losses are
consequently unavoidable. A provision is required for $13 million ($2 million + $5 million + $6
million). The $6 million will be offset against the corresponding lease liability with only a net
figure being recorded in profit or loss.

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