Overview of Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations

Indian Accounting Standard 105, Non-current Assets Held for Sale and Discontinued Operations

The objective of this Standard is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations.

In particular, this Ind AS requires in respect of assets that meet the criteria to be classified as held for sale:

(a) to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease;

(b) to be presented separately in the balance sheet; and

(c) the results of discontinued operations to be presented separately in the statement of profit and loss.

The Standard:

(a) adopts the classification ‘held for sale’;

(b) introduces the concept of a disposal group, being a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction;

(c) classifies an operation as discontinued at the date the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation.

An entity shall classify a non-current asset (or disposal group) {referred for brevity as ‘Assets’} as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Sale includes exchange of non-current assets when the exchange has commercial substance in accordance with Ind AS 16.

For this to be the case, the Assets must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such Assets and its sale must be highly probable. Thus, an Asset cannot be classified as a non-current asset (or disposal group) held for sale, if the entity intends to sell it in a distant future.

For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the Asset, and an active program to locate a buyer and complete the plan must have been initiated. Further, the Asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Paragraph 9 read with Appendix B of the Standard provides the criteria which are required to be met when the sale cannot be concluded within 12 months.

The Standard also applies to Assets which are held for distribution to owners. The conditions specified for sale as above also applies to distribution i.e. distribution within twelve months including considering the requisite permission for distribution, non-withdrawal of plan to distribute etc.

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale and:

(a) represents a separate major line of business or geographical area of operations;

(b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

(c) is a subsidiary acquired exclusively with a view to resale.

A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.

An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. The Standard specifies the treatment/ measurement in circumstances when there is a change in plan to sale Assets which was previously classified as held for sale.

An entity shall present and disclose information that enables users of the financial statements to evaluate the financial effects of discontinued operations and disposals of non-current assets (or disposal groups).

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