Carmen Ridley (AASB Board Member, Principal of AFRS and Financials template Content Provider) offers the following tips & hints for AASB 5 treatment. Contact Carmen directly (firstname.lastname@example.org) to discuss your particular situation.
AASB 5 Non-current Assets Held for Sale and Discontinued Operations is a standard that I believe is either not well understood or slips under most accountants’ financial reporting radar.
Why do I say this? I review a number of financial statements, both listed and unlisted and it is not very often that I see a line item on the statement of financial position (or balance sheet, for those of us who like the old-fashioned terminology) called ‘Non-current assets held for sale’, yet I often see losses on sale recognised in the statement of comprehensive income.
The idea of AASB 5 is that the user of the financial statements should be aware of any assets (or disposal groups) which the entity is planning on selling and therefore will no longer be used in the business. The measurement requirements of AASB 5 show the expected net inflow of economic benefits to be received from the sale.
AASB 5 states that when an asset satisfies the conditions to be classified as an ‘asset held for sale’, then the asset should be valued at the lower of its carrying amount and fair value, less costs to sell. An asset is classified as held for sale when all of the following conditions have been met:
- Management, having the authority to approve the action, commits itself to a plan to sell.
- The asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
- An active program to locate a buyer and other actions required to complete the plan to sell the asset are initiated.
- The sale is highly probable and is likely to occur within one year of being classified as held for sale.
- The asset is marketed at a price that is reasonable to its current fair value.
- Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Common assets which may be held for sale:
- Surplus buildings
- Outdated / obsolete plant and machinery
- Obsolete IT equipment
- Motor vehicles
What should entities do?
Consider whether there are any assets which you have agreed to sell / dispose of which would satisfy the AASB 5 criteria documented above, if so;
- Transfer them from the property, plant and equipment account to the ‘non-current assets held for sale’ account.
- Cease depreciation from the date of transfer.
- Ensure the transferred assets are held at the lower of current carrying amount and fair value less costs to sale.
- Any write-down to fair value less costs to sell should be recorded in the statement of comprehensive income (unless the asset has a revaluation reserve relating to it).
- Continue to monitor the carrying amount of the asset to confirm if it is appropriate.
- Apply the appropriate disclosures from AASB 5 in the year end financial statements.