IND AS – 105 Non Current Assets held for Sale

and Discontinued Operations

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IND AS 105 IND AS -105 sets out two concepts:

• Classification, measurement and presentation of Non Current asset held for sale / Disposal Group / Non Current Asset held for Distribution to Owners and;

• Classification, presentation and disclosure of discontinued operations.

AS – 24

• Disclosure and certain presentation requirements relating to discontinuing Operations.

• No Standard except for AS 10, which requires fixed assets held for sale to be measured at lower of Book value or Net realizable value and to be shown separately in financial statements..

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Non – Current Assets Held for Sale

Disposal Group

A Group of Assets to be disposed of, by sale otherwise, together as a Group in a single transaction, and liabilities directly associated with those assets will be transferred in the transaction.

Held for Sale

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

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Non – Current Assets Held for Sale INDEX A. Scope

B. Classification

C. Partial Disposal in Subsidiaries, Associates and Joint Ventures

D. Measurement

E. Changes in Plan

F. Disclosure

G. Events occurring after the balance sheet date

H. Discontinued Operations

I. First Time adoption of IND AS 105

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Non – Current Assets Held for Sale A. Scope

IND AS 105 covers the following elements:

• Non Current Assets / Disposal Group Held for Sale

• Non Current Asset Held for Distribution to Owners

• Non Current Asset that are to be Abandoned

• Partial Disposal in Subsidiaries / Associates and Joint Ventures

• Non Current Assets held exclusively for its subsequent sale

• A Subsidiary acquired exclusively with a view to resale

• Discontinued Operations

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Non – Current Assets Held for Sale B. Classification

For an Asset / disposal group to be classified as held for sale, 3 criteria’s shall be fulfilled.

(i) It must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sale of such assets.

(ii) Its sale must be highly probable

(iii) It must genuinely be sold and not abandoned.

The criteria (i) and (ii) shall be met at the reporting date in order to classify the non current asset / disposal group as held for sale.

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Non – Current Assets Held for Sale classification Contd….

(i) Available for Immediate Sale:

To meet the above criteria, there shall be an intention and ability to transfer the asset to the buyer at its present condition.

The time taken by seller is usual and customary for sale, then it would be considered as available for immediate sale.

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Non – Current Assets Held for Sale classification Contd….

(ii) Sale to be highly probable:

• The appropriate level of management must be committed to a plan to sell the asset (or disposal group),

• An Active programme to locate a buyer and complete the plan must have been initiated.

• The asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.

• The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except in certain circumstances the period may be extended beyond one year 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.

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Non – Current Assets Held for Sale classification Contd….

Non Current Asset / Disposal Group Held for Distribution:

• A Non Current Asset / Disposal Group to be classified as held for Distribution when:

1. The entity is committed to distribute the asset and

2. Distribution is highly probable.

• The probability of shareholders’ approval and other regulatory approvals (if required) should be considered as part of the assessment of whether the sale is highly probable.

• The sale or distribution should be expected to be completed within one year from the date of classification. The completion of the sale or distribution may be extended beyond one year only in case of any event or circumstances beyond the entity’s control and the entity remains committed to its plan to sell the asset.

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Non – Current Assets Held for Sale classification Contd…. Abandonment:

• An entity shall not classify Non Current Asset (or Disposal Group) as held for sale which is to be abandoned. This is because its carrying amount will be recovered principally through continuing use.

• However, if the Disposal Group to be abandoned meets the criteria of discontinued operation, the appropriate disclosure pertaining to Discontinued operation need to be given in the financial statements.

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Non – Current Assets Held for Sale classification Contd….

C. Partial disposal in Subsidiaries / Associates and Joint ventures:

(i) Subsidiary:

• An entity that is committed to a sale plan involving loss of control of a subsidiary shall classify all the assets and liabilities of that subsidiary as held for sale when the criteria as set out in the standard is met, regardless of whether the entity will retain a non-controlling interest in its former subsidiary after sale.

• The requirements of the standard will not apply when partial disposal does not result in loss of control.

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Non – Current Assets Held for Sale classification Contd….

(ii) Associate / Joint Ventures:

IND AS 105, shall apply to partial disposal in Associate / Joint Venture that meets the criteria to be classified as held for sale.

The retained portion shall be accounted for using the equity method until the disposal of an entire portion if the retained portion continues to be an associate / joint venture or else it should be accounted for in accordance with IND AS 109 – Financial Instruments.

In any case, the investment ceases to be classified as held for sale, it should be accounted for equity method retrospectively and the financial statements should be amended accordingly.

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Non – Current Assets Held for Sale classification Contd…. Acquisition of a Non Current Asset for is subsequent disposal

• When an entity acquires a non-current asset (or disposal group) exclusively with a view to its subsequent disposal, it shall classify the same as held for sale at the acquisition date only if the one-year requirement is met and it is highly probable that any other criteria that are not met at that date will be met within a short period following the acquisition (usually within three months).

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Non – Current Assets Held for Sale classification Contd…. D. Measurement

• An entity shall measure non current assets or disposal group held for sale at a lower of its carrying amount and fair values less cost to sell.

• Similarly, an entity shall measure non current assets or disposal group classified as held for distribution at a lower of its carrying amount and fair values less cost to distribute.

• When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing cost.

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Non – Current Assets Held for Sale classification Contd…. D. Measurement:

• IND AS 105, requires that a non current asset classified as held for sale or forming part of a disposal group shall not be depreciated or amortized despite the fact that the asset may continue to be used before it is actually sold.

• However, as per AS 6 and AS 26, the asset continues to be depreciated or amortised even though it is considered as held for sale.

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Non – Current Assets Held for Sale classification Contd…. E. Changes in Plan:

If a Non Current Asset ceases to classify as held for sale. The entity needs to measure at the lower of:

• Its carrying amount before the asset was classified as held for sale, adjusted for any depreciation or amortization or revaluation that would have recognized had the asset not classified as held for sale and

• Its recoverable amount at the date of decision not to sell.

The adjustment required in the carrying amount shall be included in the profit and loss from continuing operations.

As per AS 24, in case of any change in plan, the standard requires to state reasons for change and its effect in the financial statements shall be disclosed.

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Non – Current Assets Held for Sale classification Contd…. F. Disclosure:

• Non current asset shall be separately disclosed from other assets in the balance sheet.

• Assets and Liabilities of a disposal group shall be separately disclosed from other assets and liabilities in the balance sheet.

• The major classes of assets and liabilities shall be separately disclosed either in the balance sheet or in the notes.

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Non – Current Assets Held for Sale classification Contd…. F. Disclosure:

• A description of non current assets

• Description of facts and circumstances of sale and the expected manner and timing of that disposal

• Gains / loss recognized on impairment / reversal of impairment

• Reportable segment in which the non current asset is presented in accordance with IND AS 108 – Operating Segment.

• An entity shall not reclassify or represent amounts of assets classified as held for sale or disposal for the prior period to make it comparable.

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Non – Current Assets Held for Sale classification Contd…. G. Events after balance sheet date:

• In case the Criteria for classifying the Non Current Asset / Disposal Group held for sale are met after the balance sheet date but before the approval of the financial statements, the entity shall consider the Non Current Asset / Disposal Group as Held for Sale in the financial statements.

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Non – Current Assets Held for Sale classification Contd…. H. First Time adoption of IND AS 105

Ind AS 101, contains voluntary exemption whereby a first time adopter can

• Measure such assets or operations at the lower of carrying value and fair value less cost to sell at the date of transition to Ind ASs; and

• recognise directly in retained earnings any difference between that amount and the carrying amount of those assets at the date of transition to Ind ASs determined under the entity’s previous GAAP

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Discontinuing / Discontinued Operations Discontinued Operations is a component that either has been disposed of or is

classified as held for sale

Sr. No. Particulars As per IND AS 105 As per AS 24

1 Classification • Represents a separate major line of business or geographical area of operations • Is part of a single or coordinated plan to dispose of a separate major line of business or geographical area of operations • is a subsidiary acquired exclusively with a view to sell.

the entity pursuant to a single plan, is disposing of substantially in its entirety or piecemeal or terminating through abandonment and that represents a separate major line of business or geographical area of operations and that can be distinguished operationally and for financial reporting purpose.

2 Trigger for classification

• The entity has actually disposed off the operation or • Operation meets the criteria set out in the standard above.

• When an entity has entered into a binding sale agreement or • The board of directors has approved a detailed formal plan for the discontinuance and announced the plan.

3 Presentation & Disclosure

There are no material differences in the presentation and disclosure requirements under the IND AS 105 and AS 24 21

THANK YOU

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