Ind AS 105, prescribe accounting for Non-current Asset held for sale and presentation & disclosure of discontinued operations.
(i) Current assets
An assets to be current if
- It is expected to be realized, consumed, and used within a normal operating cycle.
- It is expected to be realized, consumed, and used within 12 months from the date of reporting.
- It is held for trading
- It is the cash and cash equivalent.
(ii) Non-current assets
Assets which are not current assets.
(iii) Assets held for sale
Non-current assets that will be recovered through selling the assets rather than use.
(iv) Disposal group
A group of assets & possibly some liability, an entity intends to dispose off in a single transaction.
(v) Discontinued Operations
A component* of an entity that either has been disposed off or classified as held for sale.
*Component: Branch, subsidiary, segment through a plan is being disposed off it represent a major area of operation or geographical area of operation.
This component is such that it can be identified independently (means it is distinguishable) for operation and financial decision making.[Assets, Liabilities, Experience, Income can be directly attributable to it.]
(vi) Following event cannot be considered is discontinued operation as per Ind AS 105
- Gradual phasing out of a product line or class of services.
- Discontinued several products within an ongoing line of business.
- Shifting of some production or marketing activity from one location to another.
- Closing of a facility to achieve productivity improvement or cost savings.
- Sale of subsidiary engaged in similar business that of parent.
3. Recognition if Non-current assets held for sale as per Ind AS 105
- It must be available for immediate sale in its parent condition.
- It may be subject to some customary terms & conditions.
- The sale is highly probable*
*Highly probable means if
- Management commitment
- Active effort to locate buyer
- Assets has active market
- Expected that the sale will be completed in 12 months.
4. Abandoned Non-current assets as per Ind AS 105
- Entity should not classify as held for sale a non-current assets that is to be abandoned
- What about the disposal group being abandoned (ask whether it is discontinued operation? Yes, then disclosure required)
Also read: Ind AS 40:Investment property
5. Measurement of Non-current assets held for sale as per Ind AS 105
Non-current assets held for sale measured in carrying amount or Fair value less cost of disposal whichever is less.
- Cost of disposal to be discounted at present value (P.V) of it is beyond 1 year.
- No depreciation charged on Non-current assets held for sale.
6. Change to a plan of sale
Value of Non-current assets is lower of;
- carrying amount before it was classified as Non-current assets held for sale (adjusted by depreciation) or
- Recoverable amount on the date of change
7. Presentation & disclosure as per Ind AS 105
(i) Discontinued Operations
Profit and loss A/c
- What is a pre tax profit from discontinued operation.
- What is a pre tax expenses from discontinued operation
- What are the post tax expenses?
Cash Flow statement:
- What is a cashflow attributing from Investing, Financial & Operating activities of business.
(ii) Assets held for sale
- Liabilities & assets disclosed separately.
- Remember offsetting is not permitted.