This chapter addresses the accounting treatment for various methods of disposal. It also addresses disposals of various types of assets, including subsidiaries, associates and joint ventures, businesses and other groups of non-current assets in accordance with IFRS 5. It deals with classification, measurement, presentation and disclosure of disposals and how these interact with other standards. Where this chapter does not refer specifically to a single non-current asset or to a disposal group, it can be assumed that the guidance applies equally to both.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations outlines how to account for non-current assets held for sale (or for distribution to owners). In general terms, assets (or disposal groups) held for sale are not depreciated, are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the statement of financial position.

IFRS 5 – Non-current assets held for sale and discontinued operations

Objective of IFRS 5

The objective of IFRS 5 addresses both the accounting for non-current assets held for sale, and the presentation and disclosure of discontinued operations:

• Non-current assets held for sale are measured at the lower of the carrying amount and fair value less costs to sell where they meet the held for sale criteria. Depreciation of these assets ceases and they are presented separately in the balance sheet.
• The results of discontinued operations are presented separately in the income statement.

An asset held for sale may or may not meet the criteria for presentation as a discontinued operation. A discontinued operation may result from a completed disposal or upon a disposal group meeting the held for sale criteria. Accordingly, it is possible for an entity to report a discontinued operation without presenting assets held for sale and it is possible for an entity to present assets held for sale without presenting a discontinued operation.

Definitions

Non-current assets

Non-current assets are assets that do not meet the definition of a current asset. An entity classifies an asset as current when:

(a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(c) it expects to realise the asset within 12 months after the reporting period; or

(d) the asset is cash or a cash equivalent (as defined in IAS 7), unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Scope of IFRS 5

Any disposal of a non-current asset or group of assets or a business might trigger the requirements of IFRS 5. The classification and measurement requirements of IFRS 5 apply to all recognised non-current assets and disposal groups, regardless of the type of entity. The method of disposal (sale versus distribution to shareholders versus abandonment) will impact how IFRS 5 is applied. IFRS 5 refers equally to non-current assets and any group of assets that includes non-current assets, referred to as a ‘disposal group’. Some disposal groups might be significant enough to constitute discontinued operations which trigger different presentation requirements.

‘Scoped-out’ non-current assets

The measurement requirements of IFRS 5 do not apply to the following assets (which are covered by the Standards listed):

(a) deferred tax assets (IAS 12);

(b) assets arising from employee benefits (IAS 19);

(c) financial assets within the scope of IFRS 9 or, for entities that have not yet adopted IFRS 9, IAS 39;

(d) non-current assets that are accounted for in accordance with the fair value model in IAS 40;

Note that when investment property is accounted for in accordance with the cost model in IAS 40, it falls within the scope of the measurement requirements of IFRS 5.

(e) non-current assets that are measured at fair value less costs to sell in accordance with IAS 41; and

(f) groups of contracts within the scope of IFRS 17 (or, for entities that have not yet adopted IFRS 17, contractual rights under insurance contracts as defined in IFRS 4).

The non-current assets listed above are excluded from the measurement requirements of IFRS 5 when they are held for sale (or held for distribution) either as individual assets or when they form part of a disposal group.

The exclusions relate only to the measurement requirements of IFRS 5 – the classification and presentation requirements of IFRS 5 apply to all non-current assets.

Current assets

It follows that the current assets can be affected by the requirements of IFRS 5, but only when they are part of a disposal group. In particular:

• if a current asset is part of a disposal group that also contains scoped-in non-current assets, the disposal group as a whole is subject to both the measurement requirements and the classification and presentation requirements of IFRS 5 (so that the disposal group as a whole is measured at the lower of its carrying amount and fair value less costs to sell);
• if a current asset is part of a disposal group that does not contain any scoped-in non-current assets, the entity should determine as a matter of accounting policy whether the disposal group as a whole is subject only to the classification and presentation requirements of IFRS 5, or whether it is also subject to the Standard’s measurement requirements; and
• a current asset being sold as an individual asset (i.e. not as part of a disposal group) is never classified as held for sale under IFRS 5.

Classification of non-current assets (or disposal groups) as held for sale

Assets that are to be sold – general requirements

The overall principle of IFRS 5 is that a non-current asset (or disposal group) should be classified as held for sale if it carrying amount will be recovered principally through a sale transaction rather than through continuing use.  The Standard specifies certain requirements and conditions that must be met for this to be the case.

The two general requirements for a non-current asset (or disposal group) to be classified as held for sale are that:

• the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups); and
• its sale must be highly probable.

Unless and until they meet the held for sale criteria, the following should not be reclassified as current assets: [IFRS 5:3]

• assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale; and
• assets classified as non-current in accordance with IAS 1.

Plan for sale with a back-up plan to distribute to owners

In 20X1, Entity A’s board of directors approves a detailed plan to sell a non-current asset. In addition, as a back-up plan, the directors agree that if the asset is not sold within nine months, it will be distributed to its owners.

Provided that the directors’ plan to sell the non-current asset otherwise meets the criteria in IFRS Para 5: Para7 to 9, the non-current asset should be classified as held for sale. Specifically, in accordance with IFRS 5:8, it will be necessary to demonstrate that (1) an active programme to locate a buyer and complete the sale of the asset has been initiated, (2) the asset is being actively marketed for sale at a reasonable price, and (3) the directors have a reasonable expectation that the sale will be completed within 12 months.

The fact that the directors have discussed and agreed to a back-up plan if the sale of the asset is not completed within a specified time period does not mean that it is inappropriate to classify the asset as held for sale. In contrast if, instead of being committed to sell the asset with the distribution alternative seen only as a back-up, the entity planned to dispose of the asset but had not committed to either sale or distribution to the owners as a means of completing that disposal, the asset should not be classified as held for sale or held for distribution to owners.

Methods of disposal Subsidiaries, businesses and non-current assets might be disposed of in a number of different ways. The method by which the asset or business is disposed of will determine whether the disposal will fall within the scope of IFRS 5. This section looks at each of the different methods in more detail, as well as the types of disposals that fall within IFRS 5’s scope. This will determine the presentation in the balance sheet and income statement, as well as the timing of recognising any gain or loss on disposal. Type of disposal Description IFRS 5 scope considerations Outright sale of the business In an outright sale, the entity sells an asset or business, resulting in the loss of control, in exchange for consideration. Consideration should be given to all of the factors to determine the date on which the parent loses control of the investee. An outright sale will fall within the scope of IFRS 5 once the held for sale criteria are met. An outright sale includes sales for nil consideration and paying to dispose of an investment. Piecemeal sale, in which assets are sold individually or in small groups and liabilities are settled individually In a piecemeal disposal, assets are sold individually or in small groups and liabilities are settled individually. The assets and liabilities should be derecognised in accordance with the relevant standard. For example, IFRS 9 (IAS 39) is relevant to financial assets and liabilities. Any profits or losses on sale or settlement are recognised on derecognition. IAS 16 or IAS 38 is relevant to non-financial assets. The gain or loss on the sale of individual assets is measured as the difference between the net disposal proceeds and the carrying amount of the asset at the date of disposal. In a piecemeal disposal, the disposal plan needs to be analysed to determine if the piecemeal disposals should be considered as a single plan of disposal, and thus all of the assets and liabilities meet the held for sale criteria at the same point. Where assets or disposal groups meet the held for sale criteria at different points, it is usually evidence that there is not a single co-ordinated plan for disposal. This could impact whether they will meet the discontinued operations criteria and, therefore, the income statement presentation. The date of disposal is the point at which assets and liabilities of the disposed business are de-recognised in the financial statements and any profit or loss on disposal is recorded in the income statement. The same principles apply to the disposal of an associate or joint venture. The principle applies as the individual sales and settlements occur, and not as a single transaction. If the IFRS 5 criteria are met, the individual assets or groups of assets and liabilities will need to be classified as non-current assets or disposal groups held for sale prior to the date of disposal. Partial disposal, where the group retains an interest as an associate, jointly controlled entity or a financial asset It is common for a group to reduce its interest in a subsidiary, such that it loses control and becomes an associate, joint venture or a financial asset. Similarly, an associate or a joint venture might become a financial asset through disposal of some of the entity’s shareholding. When an entity disposes a portion of an interest in a subsidiary but retains control of the subsidiary or an entity disposes of a portion of an associate or financial asset, this clearly does not fall within IFRS 5’s scope. It is neither an asset held for sale nor a disposal group. However, when the extent of a group’s investment changes (For example, an entity disposes of a subsidiary but retains an interest in an associate), the planned disposal should be considered for treatment as held for sale. Deemed disposal, where no consideration is received directly, but the group’s interest is diluted in some other way An entity might also cease to be a subsidiary, or the group might reduce its percentage interest, as a result of a deemed disposal. This might occur where the group fails to take action when shares or warrants are issued, for example: The group does not take up its full allocation of rights in a rights issue. IFRS 5 does not specifically cover deemed disposals. However, it specifically states that an entity that is committed to a sale plan involving loss of control of a subsidiary should classify all of the assets and liabilities of that subsidiary as held for sale, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the sale. Therefore, a commitment to a plan involving loss of control of a subsidiary is considered a deemed disposal plan, which should be classified as held for sale if the criteria are met. Exchange of a business for an interest in a subsidiary, associate or joint venture Disposals often arise where a parent sells a subsidiary for shares in another entity, which results in that other entity becoming an associate, joint venture or subsidiary of the parent. In such a case, there is a disposal of the interest in the subsidiary, together with an acquisition of the interest in the new associate, joint venture or subsidiary.  The disposal is recognised at the date on which control of the subsidiary is lost, and the acquisition is recognised on the date when the investor gains significant influence, joint control or control over the other entity. The exchange of a business for an interest in a subsidiary, associate or joint venture might meet the criteria to be held for sale. Disposal by demerger or distribution to owners IFRS 5 captures assets held for distribution as well as assets held for sale. Where an entity is committed to distribute an asset (or disposal group) to its owners, the non-current asset (or disposal group) is classified as held for distribution to owners. ·        A disposal might also take place by way of a de-merger, sometimes known as a ‘spin-off’. This is usually achieved by means of a dividend in specie of the shares in the entity that is disposed of to the parent entity’s existing shareholders. It might also be achieved by means of a court-approved scheme of arrangement for a return of capital, where the return of capital is settled in the form of shares in the entity that is disposed of. ·        The group does not take up its full share of a scrip issue. It is necessary to account for the proportion of the interest that has effectively been disposed of when the percentage is reduced. The group continues to recognise the full amount of its assets and liabilities following a deemed disposal when the entity remains a subsidiary, but it recognises a non-controlling interest in those assets and liabilities. After a de-merger is complete for any deemed disposal, the results might be shown as discontinued operations on a single line in the income statement if the discontinued operations criteria are met. However, prior to the de-merger being effected, the question remains as to how the assets and liabilities to be de-merged should be measured and how they should be presented on the balance sheet. This will also drive whether the results of a business to be de-merged can be presented as discontinued operations prior to the demerger (that is, at the stage at which the de-merger is highly probable but has not yet occurred). Closure of the business ·        There is no transfer of control that can be clearly evidenced when a business is disposed of by terminating it through closure. Individual assets might be sold off and liabilities might be settled, and these are subject to the same derecognition principles as above for piecemeal disposals. Other assets might be scrapped. ·        Generally, businesses are closed because they are uneconomic and, therefore, losses (and provisions for those losses) are more likely to be necessary in advance of the actual event of closure. Where a business is closed, the business as a whole should not be classified as held for sale, although individual assets and disposal groups might meet the criteria and should be classified as held for sale, as appropriate. Consideration should be given as to whether the business should be classified as a discontinued operation once it has been closed. Ceasing to be a subsidiary other than through a sale (For example, because of changes in voting rights attaching to shares held) Another party exercises its options or warrants, or options become currently exercisable. ·        An undertaking might cease to be a subsidiary as a result of loss of control. Such loss of control could occur, for example, because of changes in voting rights attaching to shares held or changes in the power to appoint or remove directors or their voting rights, or it might occur on the expiry of an agreement that previously allowed an entity to control a subsidiary.   ·        Under IFRS 10, when loss of control arises in this way, the former subsidiary should not be consolidated, but it should be shown instead as an associate or joint venture or as a financial asset, depending on the degree of influence retained. In addition, the circumstances that resulted in the entity ceasing to be a subsidiary should be explained in a note to the consolidated financial statements. An entity that is committed to a sale plan involving loss of control of a subsidiary should classify all of the assets and liabilities of that subsidiary as held for sale, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the sale. Abandonment A non-current asset might be disposed of through abandonment (that is, it is no longer used by the entity). The relevant de-recognition criteria should be considered in this case. A non-current asset or disposal group that will be abandoned cannot be classified as held for sale. Abandonment includes being used until the end of an asset or disposal group’s economic life and being closed rather than sold. A disposal group to be abandoned might meet the definition of a discontinued operation, and it should be presented and disclosed as such.

Non-current assets, including assets acquired exclusively with a view to resale, are reclassified as current where they meet the held for sale criteria in IFRS 5.

A disposal group is a group of assets, sometimes including liabilities, which will be disposed of together in a single transaction. A disposal group is not necessarily a cash generating unit (‘CGU’); it could be multiple CGUs or a part of one CGU. A disposal group could contain any assets and liabilities, including current and non-current and those within IFRS 5’s measurement scope or not. Regardless of the composition of a disposal group, where it contains a non-current asset within IFRS 5’s measurement scope, the whole disposal group is measured at the lower of its carrying amount or fair value less costs to sell. Individual assets that are not within the measurement scope of IFRS 5 are measured in accordance with the relevant standard.

A disposal group includes goodwill if it is a CGU, group of CGUs or operation within a CGU to which goodwill has been allocated.

The following assets are not in the measurement scope of IFRS 5:

• deferred tax assets (IAS 12);
• assets arising from employee benefits (IAS 19);
• financial assets within the scope of IFRS 9 (IAS 39);
• non-current assets that are accounted for in accordance with the fair value model in IAS 40;
• non-current assets that are measured at fair value less costs to sell in accordance with IAS 41; and
• contractual rights under insurance contracts as defined in IFRS 4.

Available for immediate sale

IFRS 5: Para 7 requires that “the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups)”. No further guidance on what this might mean is included within the Standard itself, but the implementation guidance accompanying IFRS 5 states that a non-current asset (or disposal group) is available for immediate sale if an entity currently has the intention and ability to transfer the asset (or disposal group) to a buyer in its present condition. The implementation guidance also sets out various examples illustrating this point, which are reproduced below.

1. Availability for immediate sale

An entity is committed to a plan to sell its headquarters building and has initiated actions to locate a buyer.

(a) The entity intends to transfer the building to a buyer after it vacates the building. The time necessary to vacate the building is usual and customary for sales of such assets. The criterion in IFRS 5 would be met at the plan commitment date.

(b) The entity will continue to use the building until construction of a new headquarters building is completed. The entity does not intend to transfer the existing building to a buyer until after construction of the new building is completed (and it vacates the existing building). The delay in the timing of the transfer of the existing building imposed by the entity (seller) demonstrates that the building is not available for immediate sale. The criterion in IFRS 5:7 would not be met until construction of the new building is completed, even if a firm purchase commitment for the future transfer of the existing building is obtained earlier.

2. Availability for immediate sale

An entity is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. At the plan commitment date, there is a backlog of uncompleted customer orders.

(a) The entity intends to sell the manufacturing facility with its operations. Any uncompleted customer orders at the sale date will be transferred to the buyer. The transfer of uncompleted customer orders at the sale date will not affect the timing of the transfer of the facility. The criterion in IFRS 5 would be met at the plan commitment date.

(b) The entity intends to sell the manufacturing facility, but without its operations. The entity does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. The delay in the timing of the transfer of the facility imposed by the entity (seller) demonstrates that the facility is not available for immediate sale. The criterion in IFRS 5 would not be met until the operations of the facility cease, even if a firm purchase commitment for the future transfer of the facility were obtained earlier.

3. Availability for immediate sale

An entity acquires through foreclosure a property comprising land and buildings that it intends to sell.

(a) The entity does not intend to transfer the property to a buyer until after it completes renovations to increase the property’s sales value. The delay in the timing of the transfer of the property imposed by the entity (seller) demonstrates that the property is not available for immediate sale. The criterion in IFRS 5 would not be met until the renovations are completed.

(b) After the renovations are completed and the property is classified as held for sale but before a firm purchase commitment is obtained, the entity becomes aware of environmental damage requiring remediation. The entity still intends to sell the property. However, the entity does not have the ability to transfer the property to a buyer until after the remediation is completed. The delay in the timing of the transfer of the property imposed by others before a firm purchase commitment is obtained demonstrates that the property is not available for immediate sale. The criterion in IFRS 5 would not continue to be met. The property would be reclassified as held and used in accordance with IFRS 5.

Intention to sell an asset within twelve months The fact that an asset is likely to be sold in the next 12 months, possibly for scrap, is not sufficient for it to be classified as held for sale. Among the criteria for classification as held for sale are that the asset is available for immediate sale and that an active programme to locate a buyer has been initiated. If an entity needs to carry on using an asset for a period of time before selling it for scrap, it is clear that the criteria for classification as held for sale have not been met because the asset is not available for immediate sale.

 Activities required to be carried out before sale

When relatively minor pre-selling activities are outstanding, and those activities are usually performed immediately before an asset is transferred, the asset could nevertheless be appropriately treated as available for immediate sale.

Conversely, when an asset is still in the course of construction, and significant activities will need to be performed before it can be transferred, it is unlikely that it could be regarded as available for immediate sale.

In the Basis for Conclusions on IFRS 5, the Board has confirmed that assets that are being used are not precluded from classification as held for sale if they meet the criteria set out in IFRS 5. This will be the case, for example, when an entity continues to operate an asset while actively marketing it. This is because, if a non-current asset is available for immediate sale, the remaining use of the asset is incidental to its recovery through sale and the carrying amount of the asset will be recovered principally through sale.

Completion of sale expected within one year

To qualify for classification as held for sale, the sale of a non-current asset (or disposal group) must be highly probable, and transfer of the asset (or disposal group) must be expected to qualify for recognition as a completed sale within one year. That criterion would not be met if, for example:

(a) an entity that is a commercial leasing and finance company is holding for sale or lease equipment that has recently ceased to be leased and the ultimate form of a future transaction (sale or lease) has not yet been determined; or

(b) an entity is committed to a plan to ‘sell’ a property that is in use as part of a sale and leaseback transaction, but the transfer does not qualify to be accounted for as a sale in accordance with paragraph 99 of IFRS 16 Leases and, instead, will be accounted for in accordance with IFRS 16.

The amendments are not substantive from an IFRS 5 perspective. Before the amendments, point (b) read as follows: “An entity is committed to a plan to ‘sell’ a property that is in use, and the transfer of the property will be accounted for as a sale and finance leaseback”.

Completion of planned overhauls prior to disposal by sale – example

On 1 March 20X2, an entity announces plans to close and sell one of its manufacturing facilities. The entity is required to perform major building and equipment overhauls to be able to market the facility effectively. The facility is closed from 30 April 20X2, and the overhauls are completed on 31 May 20X2. Immediately after the completion of the overhauls, the entity begins to market the facility and the facility is sold on 15 July 20X2.

It is not appropriate to classify the manufacturing facility as held for sale in the entity’s statement of financial position at 31 March 20X2. At that date, the entity has not met the conditions of IFRS 5:7 which require that the asset “must be available for immediate sale in its present condition …”. Assuming all the other conditions of IFRS 5:Para 7 are met, the entity should classify the asset as held for sale on 31 May 20X2, the date that the overhauls are completed and the entity begins to market the facility.

Capital expenditures in the normal course of business of a held for sale component – example

Company G owns and operates cable television franchises throughout Europe. In June 20X2, Company G commits to a plan and enters into an agreement to sell its franchises in France and Germany to Company J, subject to approval by regulators. During the time that Company G waits for regulatory approval, it is required by the sales agreement to continue to expand the cable networks of the franchises to be sold, as subscribers demand service. Such capital expenditures are common to all cable franchises and Company G would have had to make the expenditures even if it did not sell the franchises. Company G expects to invest significantly in the French and German franchises before their sale to Company J is consummated.

Assuming that regulatory approval is usual and customary for these sales, and all the other conditions of IFRS 5 have been met, Company G should classify the French and German franchises as held for sale in its statement of financial position at 30 June 20X2, because the capital expenditures that it is required to make are usual and customary for the operation of such assets (i.e. the assets are “available for immediate sale in their present condition” regardless of the capital expenditures to be incurred). Company G is operating and selling a live cable franchise and there is an expectation that Company G will have to make certain capital expenditures in the normal course of business to accommodate new subscribers.

Transferring between categories while held for sale There is no explicit guidance on the treatment of assets within a disposal group that move between different classes of asset while they are presented (and potentially measured) under IFRS 5. If the disposal group is still operating, working capital might, for example, generate new fixed assets. If the assets involved are all outside IFRS 5’s measurement scope, this does not present any issues. However, there are occasions when an asset moves from within the scope of IFRS 5’s measurement to outside the measurement category, and vice versa. The assets outside IFRS 5’s measurement scope must be valued in accordance with the relevant standard at each subsequent remeasurement date. Assets within IFRS 5’s measurement scope will remain at their carrying amount, on classification as held for sale, subject to any impairments, or reversal of impairments, that are recognised when the disposal group is remeasured. The question arises as to what to do where working capital is invested in enhancing assets under IFRS 5 measurement guidance (For example, cash expenditure on properties for further leasehold improvements). In these circumstances, we believe that it is appropriate to record the increase in the asset’s carrying amount, because the addition is effectively a ‘new’ noncurrent asset which will form part of the disposal group. Assets could also simply move between categories as a result of a change in their use – For example, a property might have been an operating property (and therefore within IAS 16’s scope) on initial classification under IFRS 5. However, over time, its use might have changed, and it now meets the definition of an investment property (and therefore should be within IAS 40’s scope). This means that the property should now fall outside the measurement scope of IFRS 5. It would not be correct, nor would it reflect the composition of the disposal group, to record the property as operating property and, therefore, within IFRS 5’s measurement scope, when it actually falls within the scope of IAS 40. Therefore, we believe that reclassification, which will impact whether assets fall into the measurement scope of IFRS 5 or another standard, is appropriate in these circumstances.

The classification, measurement and presentation requirements of IFRS 5 for assets held for sale also apply to assets held for distribution to owners.

The disclosure requirements of IFRS 5, for non-current assets held for sale and discontinued operations, remove the need to provide disclosures in accordance with other standards, unless that standard has specific disclosure requirements:

• for non-current assets held for sale or discontinued operations; or
• for measurement assets or liabilities of a disposal group not within the measurement scope of IFRS 5. This does not remove the need to provide additional disclosures to comply with IAS 1.

Classification of non-current assets (or disposal groups) as held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered principally through sale rather than through continuing use. Sale transactions include exchanges of non-current assets for other non-current assets where the exchange has commercial substance.

Held for sale classification is only achieved where the asset is available for immediate sale in its present condition and the sale is highly probable. IFRS 5 defines highly probable as “significantly more likely than probable”. The diagram below illustrates the criteria for a sale to be highly probable.

Buyer undertaking searches does not prevent classification as held for sale In order to meet the ‘highly probable’ criterion, the entity should have the intention and ability to sell the asset or disposal group in its present condition. Terms that are usual or customary might include, For example, searches and surveys of property. They do not include any conditions that have been imposed by the seller of an asset or disposal group. For example, a company has put a property on the market and expects that all of the conditions in paragraphs 7 and 8 of IFRS 5 will be met. Any buyer will undertake searches and valuations before making an offer and exchanging contracts. Such conditions are normal for properties, and any delays that might arise from such legal processes do not preclude the property from being classified as held for sale.

Planning permission required before sale The facts are as above, except that the property is being marketed subject to the vendor obtaining planning permission. Planning permission materially affects the property’s value. In such a case, the property is not available for immediate sale in its present condition; it is being made available by the vendor as a property in a materially different condition, being the inclusion of planning permission. Hence, the property would not be classified as held for sale before permission is obtained.

Plan to sell headquarters building An entity is committed to a plan to sell its headquarters building, and it has initiated actions to locate a buyer: a. If the entity intends to transfer the building to the buyer after it has vacated the premises, the time necessary to vacate the premises is considered usual and customary for sales of such assets. This would not prevent the asset from being classified as held for sale if the other criteria are met. b. If the entity intends to continue using the building until construction of a new headquarters building is completed, with no intention to transfer the existing building to the buyer until after construction of the new building is completed (and it vacates the existing building), the delay in the timing of the transfer of the existing building imposed by the entity (seller) demonstrates that the building is not available for immediate sale. This would prevent the asset from being classified as held for sale, even if a firm purchase commitment for the future transfer of the existing building is obtained earlier.

Plan to sell manufacturing facilities An entity is committed to a plan to sell a manufacturing facility, and it has initiated actions to locate a buyer. At the plan commitment date, there is a backlog of uncompleted customer orders. The entity intends to transfer the building to a buyer after the backlog of customer orders has been completed and it vacates the building. The time necessary to complete the backlog of customer orders is not usual and customary for sales of such assets. The ‘available for sale in its current condition’ criterion would not be met at the plan commitment date.

Plan to sell land and buildings An entity acquires, through foreclosure, a property comprising land and buildings that it intends to sell: a. The entity does not intend to transfer the property to a buyer until after it completes renovations to increase the property’s sales value. The delay in the timing of the property’s transfer imposed by the seller demonstrates that the property is not available for immediate sale. Hence, the criterion would not be met until the renovations are completed. b. After the renovations are completed and the property is classified as held for sale, but before a firm purchase commitment is obtained, the entity becomes aware of environmental damage requiring remediation. The entity still intends to sell the property. However, the entity does not have the ability to transfer the property to a buyer until after the remediation is completed. The delay in the timing of the property’s transfer imposed by others, before a firm purchase commitment is obtained, demonstrates that the property is not available for immediate sale. Hence, the criterion would not continue to be met, and the property would be reclassified as held and used in accordance with IFRS 5.

The following criteria must be met for a sale to be highly probable:

• The appropriate level of management must be committed to the sale. This means a level of management that has the authority to sell the asset or disposal group.
• An active programme to locate a buyer and complete the plan must have been initiated. This will include making it known that the asset or disposal group is for sale to those who might be interested.
• The asset must be actively marketed at a sale price that is reasonable in relation to its current fair value. This should take account of local conditions in the market.
• The sale must be expected to be completed within one year from the date of classification.
• It should be unlikely that any significant changes will be made to the plan or that it will be withdrawn. This might be difficult to demonstrate in practice. Judgement will, in most cases, be involved.

The likelihood of shareholders’ approval should also be considered if it is required in the jurisdiction.

Practical problems where shareholder approval is required A practical problem arises in respect of transactions requiring shareholder approval. Our view is that, where the board has authorised the sale, the first held for sale criterion has been met, because the appropriate level of management has committed to a plan to sell. The requirement to obtain shareholder approval is relevant when looking at the final criterion – that is, the actions required to complete the plan should indicate that it is not likely that there will be significant changes made to the plan or that the plan will be withdrawn. Because shareholder approval is required prior to completion of the transaction, the directors should consider whether this approval is likely to be obtained, taking into account any discussions with major shareholders.

The ‘held for sale’ criteria must be met at the balance sheet date. If the ‘held for sale’ criteria are met between the balance sheet date and the date of issue of the financial statements, there are specific disclosure requirements.

A subsidiary should be classified as held for sale where: an entity is committed to a sale plan involving loss of control of that subsidiary; and the ‘held for sale’ criteria in paragraphs 6 to 8 of IFRS 5 have been met. This would apply regardless of whether the entity retains a non-controlling interest (For example, associate, joint venture or other interest) in the former subsidiary.

Partial disposals Nature of disposal Does the disposal qualify for held for sale classification? 1 Group owns a 100% subsidiary and sells 40%. The group continues to control the company and to consolidate it. No. The group will retain control and obtain the majority of the benefits from the continuing use of the subsidiary’s assets. The group is still consolidating 100% of the net assets of the subsidiary, although there is now a noncontrolling interest. There is no disposal group in IFRS 5 terms. 2 Group owns a 100% subsidiary and sells 55%. The remaining 45% is accounted for as an associate. Yes. The recovery of the investment is principally through sale and there has been a loss of control. Therefore, the disposal of this interest meets the definition of held for sale. 3 Group owns a 55% subsidiary and sells 6%. The remaining 49% is accounted for as an associate. Yes. Under IFRS 5, the criteria are met, because there has been a loss of control. 4 Group owns a 90% subsidiary and sells 75%. The remaining 15% is accounted for as a financial asset. Yes. Because there has been a loss of control, the criteria of IFRS 5 are met. 5 Group has a 35% stake in an associate and sells 5%. The remaining 30% continues to be equity accounted. Yes. The 5% stake disposed of is required to be classified as held for sale, provided that the criteria of IFRS 5 are met. 6 Group has a 35% stake in an associate and sells 30%. The remaining 5% is accounted for as a financial asset. Yes. Only the 30% stake that is to be disposed of is classified as held for sale.

Extension of the period to complete the sale beyond one year

The period to complete the sale might be extended beyond one year. The asset could remain classified as held for sale if:

• the delay is caused by events and circumstances beyond the entity’s control; and
• there is sufficient evidence that the entity remains committed to the plan to sell the asset.

The exception to the one-year requirement applies if one of the following criteria is met:

• The entity reasonably expects, at the date when it commits itself to the sale plan, that a party other than the buyer will impose conditions on the sale that will extend it beyond one year, and:
• actions necessary to respond to those conditions can only be initiated after a firm purchase commitment (defined in Appendix A to IFRS 5) is obtained; and
• a firm purchase commitment is highly probable within one year.
• A non-current asset was already held for sale and, as a result of obtaining a firm purchase commitment, a buyer or another party unexpectedly imposes conditions that extend the sale beyond one year, and:
• timely actions to respond to the conditions have been taken; and
• the delaying factors are expected to be favourably resolved.

A non-current asset was already held for sale, and circumstances that were previously considered unlikely to arise cause the asset to not be sold in the initial one-year period, and:

• the entity took the necessary actions to respond to the circumstances during the initial period;
• the non-current asset is being actively marketed at a reasonable price, given the change in circumstances; and
• the ‘highly probable’ criteria in paragraphs 7 and 8 of IFRS 5 are met.

The event that occurs must not prevent the asset from being sold in its present condition, once the entity has taken action to respond to the event; otherwise, the criteria in paragraph 7 of IFRS 5 are not met.

Completion of sale expected within one year – exceptions (1)

An entity in the power generating industry is committed to a plan to sell a disposal group that represents a significant portion of its regulated operations. The sale requires regulatory approval, which could extend the period required to complete the sale beyond one year. Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm purchase commitment is obtained. However, a firm purchase commitment is highly probable within one year. In that situation, the conditions in IFRS 5: Para B1(a) for an exception to the one-year requirement in IFRS 5: Para 8 would be met.

Completion of sale expected within one year – exceptions (2)

An entity is committed to a plan to sell a manufacturing facility in its present condition and classifies the facility as held for sale at that date. After a firm purchase commitment is obtained, the buyer’s inspection of the property identifies environmental damage not previously known to exist. The entity is required by the buyer to make good the damage, which will extend the period required to complete the sale beyond one year. However, the entity has initiated actions to make good the damage, and satisfactory rectification of the damage is highly probable. In that situation, the conditions in IFRS 5: Para B1(b) for an exception to the one-year requirement in IFRS 5: Para8 would be met.

Completion of sale expected within one year – exceptions (3)

An entity is committed to a plan to sell a non-current asset and classifies the asset as held for sale at that date.

(a) During the initial one-year period, the market conditions that existed at the date the asset was classified initially as held for sale deteriorate and, as a result, the asset is not sold by the end of that period. During that period, the entity actively solicited but did not receive any reasonable offers to purchase the asset and, in response, reduced the price. The asset continues to be actively marketed at a price that is reasonable given the change in market conditions, and the criteria in IFRS 5:7 & 8 are therefore met.

In that situation, the conditions in IFRS 5: Para B1(c) for an exception to the one-year requirement in IFRS 5:8 would be met. At the end of the initial one-year period, the asset would continue to be classified as held for sale.

(b) During the following one-year period, market conditions deteriorate further, and the asset is not sold by the end of that period. The entity believes that the market conditions will improve and has not further reduced the price of the asset. The asset continues to be held for sale, but at a price in excess of its current fair value. In that situation, the absence of a price reduction demonstrates that the asset is not available for immediate sale as required by IFRS 5:7.

In addition, IFRS 5:8 also requires an asset to be marketed at a price that is reasonable in relation to its current fair value. Therefore, the conditions in IFRS 5: Para B1(c) for an exception to the one-year requirement in IFRS 5:8 would not be met. The asset would be reclassified as held and used in accordance with IFRS 5:26.

Assets that are to be distributed to owners

The requirements of IFRS 5 also extend to a non-current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners by IFRIC 17.

A non-current asset (or disposal group) is classified as held for distribution to owners when the entity is committed to distribute the asset (or disposal group) to the owners. For this to be the case, the assets must be available for immediate distribution in their present condition and the distribution must be highly probable.

For the distribution to be highly probable:

• actions to complete the distribution must have been initiated and should be expected to be completed within one year from the date of classification; and
• actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn.

The probability of shareholders’ approval (if required in the jurisdiction) should be considered as part of the assessment of whether the distribution is highly probable

Impairment reviews for assets not qualifying as held for sale

The criteria for classifying an asset (or a disposal group) as held for sale set out in IFRS 5:7 and 8 are very rigorous. Failure to meet these criteria should not, however, result in potentially impaired assets not being written down to their recoverable amounts.

When an entity has indicated its intention to sell an asset (or a disposal group) with a carrying amount that may exceed its fair value less costs of disposal, but the asset does not qualify as held for sale, the entity should consider this to be an impairment loss indicator under IAS 36, which would require the entity to perform an impairment review. The useful life used in estimating the future cash flows for the purpose of determining the asset’s value in use should reflect the entity’s intention to sell the asset.

IAS 36 notes that the fair value less costs of disposal of an asset to be disposed of will often approximate its value in use, because the value in use calculation will consist mainly of the net disposal proceeds. This is because the future cash flows from continuing use of the asset until its disposal are likely to be negligible.

Extension of the period required to complete a sale

IFRS 5: Para 9 notes that, on occasion, events or circumstances may extend the period to complete the sale beyond one year. Provided that the delay is caused by events or circumstances beyond the entity’s control and there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group), such an extension does not preclude an asset (or a disposal group) from being classified as held for sale.

Appendix B to IFRS 5 specifies that held for sale classification will continue to be available in the following situations: [IFRS 5: B1]

“(a) at the date an entity commits itself to a plan to sell a non-current asset (or disposal group) it reasonably expects that others (not a buyer) will impose conditions on the transfer of the asset (or disposal group) that will extend the period required to complete the sale, and:

(i) actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment is obtained, and

(ii) a firm purchase commitment is highly probable within one year.

(b) an entity obtains a firm purchase commitment and, as a result, a buyer or others unexpectedly impose conditions on the transfer of a non-current asset (or disposal group) previously classified as held for sale that will extend the period required to complete the sale, and:

(i) timely actions necessary to respond to the conditions have been taken, and

(ii) a favourable resolution of the delaying factors is expected.

(c) during the initial one-year period, circumstances arise that were previously considered unlikely and, as a result, a non-current asset (or disposal group) previously classified as held for sale is not sold by the end of that period, and:

(i) during the initial one-year period the entity took action necessary to respond to the change in circumstances,

(ii) the non-current asset (or disposal group) is being actively marketed at a price that is reasonable, given the change in circumstances.

A firm purchase commitment is an agreement with an unrelated party, binding on both parties and usually legally enforceable, that (a) specifies all significant terms, including the price and timing of the transactions, and (b) includes a disincentive for non-performance that is sufficiently large to make performance highly probable.

What is included in the carrying amount of a disposal group? Apart from stating that the disposal group includes, where appropriate, goodwill, IFRS 5 does not elaborate further on what the carrying amount of a disposal group is. While this might seem obvious (it being the carrying amount of all of the assets and liabilities plus goodwill), the position of amounts that are recorded in reserves is not clear from the definition itself. Certain accounting standards require amounts to be recognised directly in reserves (or in other comprehensive income and accumulated in equity), including cumulative translation differences (CTDs) on foreign net investments (IAS 21) and amounts related to cash flow hedges (IAS 39). On the sale of a foreign operation, CTDs are recycled to the income statement to form part of the overall gain or loss on disposal, and amounts related to cash flow hedges are recycled to the income statement where the hedged transaction impacts profit or loss. It might, therefore, be argued that, since the amounts recorded directly in equity will, in effect, form part of the overall net assets disposed of, they should be included in the carrying amount when calculating the lower of carrying amount and fair value less costs to sell. However, write-downs made under IFRS 5 are called ‘impairments. Amounts that have been recorded directly in reserves in respect of CTDs are not included in the carrying amount of a cash-generating unit for the purpose of calculating any impairment made under IAS 36. Such amounts are recycled to the income statement only on disposal of the related net investment (under para 48 of IAS 21). We consider that the carrying amount of a disposal group should not include CTDs, and other amounts that have been recorded directly in other comprehensive income and accumulated in equity, for the purpose of calculating the lower of carrying amount and fair value less costs to sell under IFRS 5. They should be recognised in the income statement only when the disposal group is sold. This does lead to an anomalous situation. Although there might be gains when disposal groups are sold (because the disposal group cannot be written up beyond its carrying amount), we would not expect losses to arise; the disposal group is held at the lower of carrying amount and fair value less costs to sell. However, if there is a debit balance for CTDs, this will result in a further loss when the disposal group is sold. Another result is that an impairment recorded under IFRS 5 might be matched (albeit in a different accounting period) by a gain on sale when a credit is recycled from reserves. Amounts recognised directly in reserves relating to cash flow hedges are not part of the carrying amount of a disposal group, and they should be treated as they normally would be under IAS 39. However, amounts are recognised when the hedged item affects profit or loss, and this would include any write-down of the hedged item under IFRS 5. If a disposal group including a hedging relationship is sold, the amount remaining in the cash flow hedging reserve will be recycled to the income statement at the point of disposal, and it will form part of the gain or loss on disposal. Goodwill that has been recorded directly in reserves under a previous GAAP is not recycled on disposal of the related operation. For this reason, we consider that, whilst the carrying amount of the disposal group includes any related goodwill that has been capitalised on the balance sheet, it should not include goodwill written off to reserves, in common with other amounts recorded in equity. In accordance with IFRS 5, the goodwill written off to reserves should not be disclosed separately.

Measurement of defined benefit plan in disposal group A construction company plans to dispose of its activities in Ireland. It had defined benefit plans in place for its Irish employees. Management wants to account for the plan assets and obligations at fair value in accordance with IFRS 5. While the defined benefit plans need to be included in the disposal group, the plan assets and obligations should still be measured in accordance with IAS 19, because IFRS 5 does not cover the measurement of plan assets and obligations.

Measurement of business held for sale Entity A has a business that it has owned for a number of years, which was stated at the following amounts in its consolidated financial statements at the end of the previous accounting period: Asset/(liability) Carrying value at 31 December 20X3 C’000 Attributed goodwill 200 Intangible assets 950 Financial asset 300 Property, plant and equipment 1,100 Deferred tax asset 250 Current assets – inventory, receivables and cash balances 600 Current liabilities (850) Non-current liabilities – provisions (300) 2,250 Entity A decides to sell the business and puts it on the market on 15 June 20X4. The steps in the IFRS 5 process are as follows: (1) Does the business meet the criteria to qualify as held for sale? Entity A should ensure that the disposal group is available for sale immediately in its present condition, that the sale is highly probable, and that the relevant IFRS 5 criteria are met. If these conditions are not met, the disposal group will not qualify as held for sale. For the purpose of this example, assume that: The disposal group meets all of the conditions to be classified as held for sale at 15 June 20X4. The disposal group does not meet the conditions in IFRS 5 to be classified as a discontinued operation. (2) The disposal group should be measured in accordance with applicable IFRSs. The disposal group is stated at the following amounts immediately prior to reclassification: Asset/(liability) Carrying value at 31 December 20X3 C’000 Attributed goodwill 200 Intangible assets 930 Financial asset 360 Property, plant and equipment 1,020 Deferred tax asset 250 Current assets – inventory, receivables and cash balances 520 Current liabilities (870) Non-current liabilities – provisions (250) 2,160 These values take account of any changes in balances since the previous year end, including amortisation/depreciation up to 15 June 20X4, and they are measured in accordance with applicable standards (For example, IAS 16, IFRS 9 and IAS 36). The financial asset has increased in value. (3) The disposal group should be measured at the lower of carrying amount and fair value less costs to sell Entity A is marketing the disposal group at C1,900,000. It estimates that the costs to sell will be C70,000. These consist of professional fees to be paid to external lawyers and accountants. The disposal group should be measured at C1,830,000. The impairment write-down of C330,000 (C2,160,000 – C1,830,000) should be recorded within profit from continuing operations. (4) The impairment of C330,000 should be allocated to the carrying values of the appropriate non-current assets Asset/(liability) Carrying value at 15 June 20X4 Impairment Carrying value under IFRS 5 at 15 June 20X4 C’000 C’000 C’000 Attributed goodwill 200 (200) – Intangible assets* 930 (62) 868 Financial asset 360 – 360 Property, plant and equipment* 1,020 (68) 952 Deferred tax asset 250 – 250 Current assets – inventory, receivables and cash balances 520 – 520 Current liabilities (870) – (870) Non-current liabilities – provisions (250) – (250) 2,160 (330) 1,830 The impairment loss is allocated first to goodwill and then pro rata to the other assets of the disposal group within IFRS 5’s measurement scope (these are marked with an asterisk). Note that this does not include the financial asset, the deferred tax asset or the current assets. In addition, the impairment allocation can only be made against assets, and it is not allocated to liabilities. (5) Update measurement at the period end There has been no change to the plan to sell the disposal group, and entity A still expects to sell it within one year of initial classification. The disposal group has not, however, been sold by the 20X4 period end. All of the assets and liabilities outside IFRS 5’s measurement scope are remeasured in accordance with the relevant standards. The assets that are remeasured in this case under the relevant standards are the financial asset (IFRS 9), the deferred tax asset (IAS 12), the current assets and liabilities (various standards) and the non-current liabilities (IAS 37). These are marked ‘†’ in the table below. Following remeasurement in accordance with relevant standards, the disposal group is stated at C1,710,000 in entity A’s accounting records. The disposal group has not been trading well, and its fair value less costs to sell has fallen to C1,650,000. The impairment of C60,000, after remeasuring the appropriate assets and liabilities to C1,710,000, should be allocated as at step 3, in line with the assets subject to the measurement requirements of IFRS 5 (that is, to intangible assets and property, plant and equipment, marked with an asterisk). The disposal group continues to be consolidated as normal in the income statement. The fall in its net assets under normal measurement rules, from C1,830,000 to C1,710,000, will be recorded in the individual income statement line items, leading to a net trading loss of C120,000. There will then be an impairment recorded in profit or loss of C60,000. Asset/(liability) Carrying value at 15 June 20X4 Change in value to 31 December 20X4 IFRS 5 impairment Carrying value under IFRS 5 31 December 20X4 C’000 C’000 C’000 C’000 Attributed goodwill – – – – Intangible assets* 868 – (29) 839 Financial asset† 360 50 – 410 Property, plant and equipment* 952 – (31) 921 Deferred tax asset† 250 (20) – 230 Current assets – inventory, receivables and cash balances† 520 (120) – 400 Current liabilities† (870) (30) – (900) Non-current liabilities – provisions† (250) – – (250) 1,830 (120) (60) 1,650 A disposal group that is not classified as a discontinued operation has to be consolidated as normal (that is, transactions are recorded within individual line items). In practical terms, it might be easier to record the disposal group’s transactions (sales, purchases, operating expenses) through the group’s accounting systems as they occur, while taking care not to remeasure (or depreciate) those assets within IFRS 5’s scope. This will lead to the correct income statement line-item classifications and to those assets outside the scope of IFRS 5 being measured correctly (subject to any impairments). The same point applies to disposal groups that are discontinued operations. Although a single line is presented, representing total post-tax loss and any remeasurement changes, this is split into separate line items in the notes. (6) Subsequent increases in fair value less costs to sell If there is a subsequent increase in fair value less costs to sell, at any reporting date where the disposal group continues to meet the criteria to be classified as held for sale, it can only be recognised to the extent that: ·        It has not been recognised in accordance with paragraph 19 of IFRS 5; on remeasurement of assets and liabilities in accordance with other accounting standards, in this case there has, in fact, been a loss recognised (of C120,000) and not a gain. ·        An impairment was recognised either in accordance with IFRS 5 or, previously, IAS 36 in respect of the assets within the scope of IFRS 5’s measurement requirements; entity A should examine whether any impairment losses had been recorded against the goodwill, intangible assets or property, plant and equipment under IAS 36 prior to classification as held for sale. Since reclassification under IFRS 5, impairment losses totalling C390,000 (C330,000 + C60,000) have been recorded. This includes C200,000 of goodwill impairment. Entity A’s policy is that goodwill impairments are not reversed, so the maximum amount that can be reversed is C190,000 (see also para 30.78). Under IFRS 5, if there were no previous IAS 36 impairments, C190,000 would be available against which a gain in fair value less costs to sell could be recognised. The subsequent write-down in accordance with applicable standards of C120,000 (from C1,830,000 to C1,710,000) is not available, because the write-down relates to assets outside IFRS 5’s measurement scope. Assume that there was a subsequent increase at the 31 March 20X5 reporting date in fair value less costs to sell of the disposal group as a whole of C300,000 (from C1,650,000 to C1,950,000). The element of that gain that arises on remeasurement of individual assets and liabilities outside IFRS 5’s measurement scope was C100,000, which increased the carrying amount of the individual assets in the disposal group to C1,750,000. Following the second bullet point above, the maximum amount that can be reversed is limited to the cumulative impairment loss (excluding goodwill impairment). An alternative treatment exists. The maximum that can be reversed is, therefore, C190,000. In this example, the full amount of C190,000 can be reversed, because the increase in fair value less costs to sell related to the IFRS 5 remeasurement is C200,000. The carrying amount of the disposal group is thereby increased to C1,940,000 (C1,650,000 + C100,000 + C190,000). This is illustrated in the table below. The increase in carrying value is allocated proportionately to intangible assets and property, plant and equipment. Asset/(liability) Carrying value under IFRS 5 at 31 December 20X4 Remeasurement at 31 March 20X5 Carrying value after remeasurement IFRS 5 gain recognition Carrying value under IFRS 5 31 March 20X5 C’000 C’000 C’000 C’000 C’000 Attributed goodwill – – – – – Intangible assets* 839 – 839 91 930 Financial asset† 410 100 510 – 510 Property, plant and equipment* 921 – 921 99 1020 Deferred tax asset 230 – 230 – 230 Current assets – inventory, receivables and cash balances† 400 – 400 – 400 Current liabilities† (900) – (900) – (900) Non-current liabilities – provisions† (250) – (250) – (250) 1,650 100 1,750 190 1,940

Measurement of property prior to classification as held for sale An item of property, plant and equipment that is measured on the cost basis should be measured in accordance with IAS 16. This standard requires an item of property, plant and equipment to be carried at cost less accumulated depreciation. Entity A owns an item of property, which was stated at the following amounts in its last financial statements: 31 December 20X5 C’000 Cost 1,200 Depreciation (600) Net book value 600 The asset is depreciated at an annual rate of 10% (C120,000). During July 20X6, entity A decides to sell the asset and, on 1 August, the asset meets the conditions to be classified as held for sale. At 31 July, entity A should ensure that the asset is measured in accordance with IAS 16. It should be depreciated by a further C70,000 (7 months × C10,000), and it should be carried at C530,000 before it is measured in accordance with IFRS 5. From the date when the asset is classified as held for sale, no further depreciation will be charged.

Measurement of revalued property prior to classification as held for sale An item of property, plant and equipment, within a class that is measured under the revaluation model, should be carried at fair value less accumulated depreciation, in accordance with IAS 16. Entity B has a policy of revaluing its property. Entity B owns an item of property that is stated at the following amounts in its most recent annual financial statements: 31 December 20X6 C’000 Revalued amount 7,500 Depreciation since last revaluation (500) Net book value 7,000 The asset is depreciated at an annual rate of 10% (C750,000). During 20X7, entity B decides to sell the disposal group containing that asset. The asset meets the conditions to be classified as held for sale on 1 July 20X7. At 30 June 20X7, entity B should charge a further C375,000 of depreciation, giving a carrying amount of C6,625,000. Entity B does not necessarily have to revalue the asset in accordance with IAS 16 if the carrying amount does not materially differ from the actual fair value at 30 June 20X7. If the fair value at 30 June does not materially differ, the amount of C6,625,000 less costs to sell should be used as the basis for measuring the disposal group under IFRS 5.