Ifrs 5

1.
For an asset to be classified as 'held for sale' under IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations its sale must be 'highly probable'. Which of the following is NOT a requirement if the sale is to be
regarded as highly probable?
A Management must be committed to a plan to sell the asset.
B A buyer must have been located for the asset.
C The asset must be marketed at a reasonable price.
D The sale should be expected to take place within one year from the date of classification
2. Complete the statement using the options provided

An asset classified as 'held for sale' should be measured at the lower of_____and __________
The following scenario relates to questions 3-6.

At a board meeting in June 20X3, Neutron Co's directors made the decision to close down one of its factories by 30
September 20X3 and market both the building and the plant for sale. The decision had been made public, was
communicated to all affected parties and was fully implemented by 30 September 20X3.
The directors of Neutron Co have provided the following information relating to the closure:
Of the factory's 250 employees, 50 will be retrained and deployed to other subsidiaries within the Neutron group
during the year ended 30 September 20X4 at a cost of $125,000. The remainder accepted redundancy at an average
cost of $5,000 each.
The factory's plant had a carrying amount of $2.2 million, but is only expected to sell for $500,000, incurring
$50,000 of selling costs. The factory itself is expected to sell for a profit of $1.2 million.
The company also rented a number of machines in the factory under short-term leases which have an average of
three months to run after 30 September 20X3. The present value of these future lease payments at 30 September
20X3 was $1 million, however, the lessor has stated that they will accept $850,000 if paid on 30 October 20X3 as a
full settlement. Penalty payments, due to the non-completion of supply contracts, are estimated to be $200,000, 50%
of which is expected to be recovered from Neutron Co's insurers.
3. Identify whether the following statements are required or not required if an operation is to be classified as a
discontinued operation in accordance with IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations?
The operation represents a separate major line of business or geographical area
The operation is a subsidiary
The operation has been sold or is held for sale
The operation is considered not to be capable of making a future profit following a period of losses
4. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations prescribes the recognition criteria for non-
current assets held for sale. For an asset or a disposal group to be classified as held for sale, the sale must be highly
probable.
Which of the following must apply for the sale to be considered highly probable?
(1) A buyer must have been located
(2) The asset must be marketed at a reasonable price
(3) Management must be committed to a plan to sell the asset
(4) The sale must be expected to take place within the next six months
A (2) and (3)
B (3) and (4)
C (1) and (4)
D (1) and (2)
5. What is the profit or loss on discontinued operations relating to property, plant and equipment for the year ended
30 September 20X3?
A $1.75 million loss
B $1.75 million profit
C $550,000 loss
D $550,000 profit
6. In respect of the leases and penalty payments, what provision is required in the statement of financial position of
Neutron Co as at 30 September 20X3?
A $950,000
B $1,200,000
C $1,050,000
D $1,100,000
#7
Calcula is a listed company that operates through several subsidiaries. The company develops specialist software for
use by accountancy professionals.
(a) In its annual financial statements for both 20X2 and 20X3, Calcula classified a subsidiary as held for sale and
presented it as a discontinued operation. On 1 January 20X2, the shareholders had, at a general meeting of the
company, authorised management to sell all of its holding of shares in the subsidiary within the year. In the year to
31 May 20X2, management made the decision public but did not actively try to sell the subsidiary as it was still
operational within the group.
Calcula had made certain organisational changes during the year to 31 May 20X3, which resulted in additional
activities being transferred to the subsidiary. Also during the year to 31 May 20X3, there had been draft agreements
and some correspondence with investment bankers, which showed in principle only that the subsidiary was still for
sale.
Required
Discuss whether the classification of the subsidiary as held for sale and its presentation as a discontinued operation
is appropriate, making reference to the principles of relevant IFRSs and evaluating the treatment in the context of
the Conceptual Framework for Financial Reporting.
#8
You are the newly appointed financial controller of Havanna and have been asked to give advice to the board of
directors on the following transactions it entered into in the year ended 30 November 20X3.
(a) Havanna owns a chain of health clubs and has entered into binding contracts with sports organisations, which
earn income over given periods. The services rendered in return for such income include access to Havanna's
database of members, and admission to health clubs, including the provision of coaching and other benefits. These
contracts are for periods of between 9 and 18 months. Havanna's accounting policy for revenue recognition is to
recognise the contract income in full at the date when the contract is signed. The rationale is that the contracts are
binding and at the point of signing the contract, the customer gains access to Havanna's services. The directors are
reluctant to change their accounting policy.
In May 20X3, Havanna decided to sell one of its regional business divisions through a mixed asset and share deal.
The decision to sell the division at a price of $40 million was made public in November 20X3 and gained
shareholder approval in December 20X3. It was decided that the payment of any agreed sale price could be deferred
until 30 November 20X5.
It is estimated that the cost of allowing the deferred payment is $0.5 million and that legal and other professional
fees associated with the disposal will be around $1 million. The business division was identified correctly as 'held
for sale' and was presented as a disposal group in the statement of financial position as at 30 November 20X3. At the
initial classification of the division as held for sale, its net carrying amount was $90 million. In writing down the
disposal group's carrying amount, Havanna accounted for an impairment loss of $30 million which represented the
difference between the carrying amount and value of the assets measured in accordance with applicable
International Financial Reporting Standards (IFRS).
Required
Advise the directors how to account for the disposal group in the financial statements for the year ended 30
November 20X3.
#9
Willow is a public limited company and would like advice in relation to the following transactions.
On 1 June 20X1, Willow acquired a property for $5 million and annual depreciation of $500,000 is charged on the
straight-line basis with no residual value. At the end of the previous financial year of 31 May 20X3, when
accumulated depreciation was $1 million, a further amount relating to an impairment loss of $350,000 was
recognised, which resulted in the property being valued at its estimated value in use. On 1 October 20X3, as a
consequence of a proposed move to new premises, the property was classified as held for sale. At the time of
classification as held for sale, the fair value less costs to sell was
$3.4 million. At the date of the published interim financial statements, 1 December 20X3, the property market had
improved and the fair value less costs to sell was reassessed at $3.52 million and at the year end on 31 May 20X4 it
had improved even further, so that the fair value less costs to sell was $3.95 million. The property was sold on 5
June 20X4 for $4 million.
Required
Discuss how the above items should be dealt with in the financial statements of Willow.

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1.

2. Complete the statement using the options provided

The following scenario relates to questions 3-6.

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