The difference described above is presented in a separate line item in profit or loss.

Disclosure of the carrying amount of the dividend payable, and any changes in fair value thereof, is required.

A dividend might be declared after the reporting period but before the financial statements are authorised for issue. The nature and carrying amount of the asset to be distributed should be disclosed, as well as the fair value of the asset, if different.

Presenting subsidiaries acquired exclusively with a view to resale

Assets (including goodwill) and liabilities of a subsidiary acquired exclusively with a view to resale are presented separately on the face of the balance sheet. There is no need to further disaggregate the assets and liabilities of the subsidiary in the notes to the financial statements.

A single figure should be presented on the face of the income statement for the results of subsidiaries acquired exclusively with a view to resale. However, analysis of the single amount is not required. The results of subsidiaries held for resale and other discontinued operations could be aggregated and a single amount presented on the face of the income statement, with further disclosure in the notes to the financial statements.

No separate disclosure is required for the cash flows of subsidiaries acquired exclusively with a view to resale (again, in contrast to other discontinued operations).

Presenting changes in measurement

All impairments are recognised in the income statement, including impairments of previously revalued assets. This is a departure from IAS 36, where an impairment loss on a revalued asset is treated as a revaluation decrease. IFRS 5 requires all assets within a disposal group that are within IFRS 5’s measurement rules to be treated in the same way for impairment purposes, whether they were previously revalued or not.

Example of balance sheet presentation of assets held for sale The illustrative example in IFRS 5 draws a sub-total for current assets and liabilities excluding amounts held for sale, and it then shows the assets held for sale and liabilities held for sale separately below other current assets. An alternative acceptable presentation is to show the assets held for sale and liabilities held for sale as separate line items within current assets and current liabilities. In addition to separate presentation of assets and liabilities on the face of the balance sheet, IFRS 5 requires the major classes of assets and liabilities to be separately disclosed. This could be done on the face of the balance sheet or in the notes. The exception to this is for subsidiaries acquired exclusively with a view to resale: a subsidiary held exclusively with a view to resale need only be split between assets (including goodwill) and liabilities. Where there were no non-current assets or disposal groups held for sale in the comparative period, there are no figures in the comparative period shown as assets held for sale. If there were, the comparative note would contain details for those non-current assets or disposal groups. The comparatives would only be those non-current assets or disposal groups held for sale at the last period end.

Major classes of assets and liabilities held for sale must be separately presented under IFRS 5, except for assets and liabilities of a subsidiary acquired exclusively with a view to resale. This could be done on the face of the balance sheet or in the notes.

Comparatives in the balance sheet are not restated for non-current assets or disposal groups that become classified as held for sale in the current period. This contrasts with the treatment in the income statement for discontinued operations where comparatives are re-presented.

Presenting discontinued operations

To meet the definition of a discontinued operation, the following must apply:

• It is a component of an entity.
• It either has already been disposed of or is classified as held for sale.
• It is one of the following:
• a separate major line of business or geographical area of operations;
• part of a single plan to dispose of the above; or
• a subsidiary acquired with a view to resale.

The definition does not specifically address components that are held for distribution to owners. However, we would consider it acceptable to use discontinued operations presentation for the component of an entity that is to be distributed to owners if

(a) the held for sale criteria are met at the balance sheet date, and

(b) the disposal group held for distribution is separately presented in the balance sheet.

The following diagram illustrates the considerations for classification of discontinued operations.

Closure of single retail outlet Entity B is a retailer of take-away food. It decides to sell one of its outlets, named ‘C’, based in France. Entity B will continue to run 500 other outlets in France. All IFRS 5 criteria for held for sale classification were first met at 23 May 20X7. Outlet C will be sold in September 20X7. Management believes that outlet C is a discontinued operation, and it wants to present the results of outlet C as ‘discontinued operations. Although outlet C is a disposal group, it is not a discontinued operation, because it is only one outlet; it is not a major line of business or geographical area, nor a subsidiary acquired with a view to resale.

Timing of discontinued operations To meet the definition of ‘discontinued’, an operation must have already been disposed of (by a particular reporting date) or must be classified as held for sale at that point. This means meeting the conditions to be classified as held for sale that are set out in IFRS 5. Under IFRS 5, operations that are to be terminated or closed down, rather than sold, will not qualify as discontinued when the entity makes a decision to close them. The held for sale criteria will not be met, because the operation will not be recovered principally through sale. However, many operations will qualify to be presented as discontinued once they actually are closed. IFRS 5 states that, if a disposal group meets the discontinued operation criteria, the cash flows and results of the disposal group should be presented as discontinued operations at the date on which it ceases to be used. In many situations, determining when an operation has ‘ceased to be used’ is clear-cut, because all sources of revenues and costs have been terminated and all assets disposed of; however, it can be a judgemental area, depending on the facts and circumstances. For example, whilst all revenue-earning activities might have ceased, there might be runoff costs still to be incurred and assets still to be sold or scrapped. In those situations, it is necessary to consider the nature of the costs still to be incurred (and, if applicable, the credits still to be received), and to form a judgement as to whether they comprise an activity.

Pharmaceutical wholesale business closed A company carried out a pharmaceutical wholesaling business that it operated from several leasehold premises throughout the country. The business has been closed, all stocks have been disposed of, and employees have been made redundant before the end of three months into the next financial year. At that time, some debtors remain to be collected, and costs will continue to be incurred in respect of the vacated premises until the leases are disposed of. In this example, the former activity of pharmaceutical wholesaling has ceased. The outstanding future transactions do not constitute the continuation of the activity and, consequently, the operation has been discontinued.

Closure of engineering contracting segment A group has announced that it is closing an engineering contracting segment. Although no new contracts are being undertaken, all existing contracts will be completed and the business will be run down accordingly. In this situation, the operation will have ceased to be used when the contracting activity has been completed (that is, at the end of the last contract). In the period during which existing contracts are completed, the group is continuing to carry out a revenue-earning activity, albeit that the activity is being wound down, and so it does not qualify as a discontinued operation.

Closure of lending operation A group is closing its lending operation. It will make no new loans, but it will continue to collect the principal and interest on the outstanding loans until the end of the original term. When should the operation be classified as discontinued? The operation cannot be classified as discontinued until the final interest payment has been collected, because this is the point at which the revenue-generating activity ceases. This contrasts with previous FAQ, where the operation could be classified as discontinued, notwithstanding the outstanding debtors. However, the difference is that, in previous FAQ, the remaining activity was a mere cash collection exercise, with no significant interest revenue generated.

Major line of business or geographical area of operations The ‘magnitude’ definitions of discontinued operations are consistent with those in IAS 35, which was the standard preceding IFRS 5. IFRS 5 has not included the elaborations contained in IAS 35 on the definition of a discontinued operation. These continue to be useful guidance. IAS 35 noted that a separate business segment or a major geographical segment, as defined in IAS 14, would normally meet the condition that a discontinued operation should represent a major line of business or a major geographical area of operations. (IAS 35 used the word ‘discontinuing’, but the change of tense refers only to the timing of classification, so the guidance is helpful when considering the size of the operation.) However, it went on to say that part of a business or geographical segment, as defined by IAS 14, might also satisfy the condition of being a major line of business or major geographical area of operations. Where an entity operates in a single business or a major geographical segment and, therefore, does not report segmental information, a major product or service line might also satisfy that condition. IAS 14 permitted business segments or geographical segments that are substantially similar to be combined as a single reportable business segment or geographical segment. Under IFRS 8, reportable segments could comprise more than one operating segment. Therefore, it is possible that a single business segment or geographical segment that was reported under IAS 14, or a single reporting segment under IFRS 8, might in fact comprise several substantially similar segments. The discontinuance of one of the similar segments would appear to meet the definition of a discontinued operation. Note that the condition in IFRS 5 is that the component represents a ‘separate’, and not a ‘different’, major line of business or geographical area of operations. IAS 35 noted that IAS 14 permits, but does not require, the different stages of a vertically integrated operation to be identified as separate business segments. The example given in IAS 14 is the practice, of many international oil companies, of reporting their upstream activities (exploration and production) and their downstream activities (refining and marketing) as separate business segments. IFRS 8 would also permit vertically integrated operations to be identified as separate operating segments. IAS 35 noted that such vertically integrated operations (that is, upstream or downstream activities in the example) might satisfy the condition of being a separate major line of business or geographical area of operations.

Operations in US being sold An entity has one business segment, and it operates in the UK, the US and Australia. Each of these operations represents a component of the entity and a major geographical area of operations. Management has decided to sell the US operation, which met the criteria to be classified as held for sale during the year. The US operation should be disclosed in the entity’s financial statements as a discontinued operation, despite the fact that there has been no change to the number of business segments.

Piecemeal disposal of leisure division In the case of 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. Different parts of the overall operation might qualify as discontinued at different times. IFRS 5 requires that, if the component is not itself a separate major line of business or geographical area of operations, it must be ‘part of a single co-ordinated plan’ to dispose of such a line of business or geographical area of operations. A key point in the definition, therefore, is that there should be a single plan. Example A group decides to sell its leisure division, that consists of a hotel group and a chain of fitness centres. The selling agent has advised that separate buyers should be sought for the hotel and fitness centre activities, to maximise disposal proceeds. Although there are two contemplated buyers, the disposals of the hotel and fitness centres are co-ordinated: the sale of one (hotel or fitness centres) would not proceed without the sale of the other. There is a single co-ordinated plan to dispose of the division. Therefore, the fact that there might be more than one component to the transaction does not prevent the disposal group from being classified as a discontinued operation.

Piecemeal disposal and discontinued operations In the case of a piecemeal disposal pursuant to a single plan, there is no single date at which the overall operation will qualify as discontinued. The first part of the definition of ‘discontinued’ is that the component meets the conditions to be classified as held for sale. In the case of a piecemeal disposal that is part of a larger single plan, only those parts of the overall operation being sold that meet the conditions to be classified as held for sale will be discontinued at any reporting date. Although a major line of business or geographical area of operations is being sold, not all of it might be presented and measured as discontinued at any balance sheet date. Other operations that form part of the single plan might be classified as discontinued at a future date, when they satisfy the criteria. A single plan could last a number of years, with different elements satisfying the discontinued criteria as the plan progresses.

Other items that do not meet the definition of discontinued operations All discontinued operations must meet the definition to be classified as such. There are various other items that will also fail to meet the definition, which are considered here. Entities often sell or close factories, abandon products or product lines and reduce their workforce. Generally, these types of reorganisations do not meet the definition of discontinued operations in IFRS 5, although they might occur in connection with a discontinued operation. For example, an entity might announce a detailed formal plan to sell an operation that qualifies as a discontinued operation under the standard. At the same time, management might decide to reduce the workforce at the head office because there will, in future, be a reduced central function or the head office might be relocated to be closer to the remaining operations. The reduction in the workforce at head office, or the relocation of the head office, is associated with the discontinued operation, but it is not itself a discontinued operation. It would, therefore, be treated as a continuing operation rather than be included in the discontinued operation. Example – Majority of Swiss operation has been sold An entity rents warehouse space to entities that wish to store goods on a long-term basis. It has operated in France, Germany and Switzerland for a number of years. Each of these operations represents a component of the entity and a major geographical area of operations. During the year, the majority of the facilities in Switzerland were sold, and that geographical segment will be significantly smaller following the divestment. However, the Swiss operation should not be disclosed as a discontinued operation, because the activities have been reduced but not entirely discontinued. Other examples of activities that do not necessarily satisfy the definition are: ·        Gradual or evolutionary phasing out of a product line or class of service. ·        Discontinuing, even if relatively abruptly, several products within an ongoing line of business. ·        Shifting some production or marketing activities for a particular line of business from one location to another. ·        Closing a facility to achieve productivity improvements or other cost savings. These examples will generally not satisfy the conditions to be treated as discontinued operations, whether due to size or because they will not meet the definition of ‘held for sale’.

Partial disposals and discontinued operations Situation Classified as a discontinued operation? 1 Subsidiary => subsidiary No. Assets and liabilities are not within the scope of IFRS 5. 2 Subsidiary => associate 100% of net assets treated as a disposal group under IFRS 5 (all assets presented in a single line, and all liabilities presented in a single line); accounted for as a discontinued operation in the income statement if conditions are met. The group continues to consolidate, but follows IFRS 5. If the subsidiary is less than 100% owned, any minority interest should be separately identified in the equity section of the balance sheet. 3 Subsidiary => financial asset 100% of net assets treated as a disposal group under IFRS 5 (all assets presented in a single line, and all liabilities presented in a single line); accounted for as a discontinued operation in the income statement if conditions are met. Any re-measurements following IFRS 5 classification will be presented as part of continuing operations in the income statement (unless the subsidiary qualifies as discontinued). If the subsidiary is less than 100% owned, any minority interest should be separately identified in the equity section of the balance sheet. 4 Associate => associate The portion of an investment in the associate is treated as an asset held for sale. The retained portion of an investment in the associate that has not been classified as held for sale should be accounted for using the equity method until the disposal of the portion that is classified as held for sale. After the disposal, the retained interest continues to be an associate, and so it should be equity accounted for. 5 Associate => financial asset The portion of the associate is treated as a disposal group. The retained portion of an investment in the associate that has not been classified as held for sale should be accounted for using the equity method until the disposal of the portion that is classified as held for sale. After the disposal, the retained interest becomes a financial asset, and so it should be accounted for in accordance with IFRS 9. Additional disclosure will be required in order to explain the transaction. 6 Associate => no investment The entire associate is treated as a disposal group. The group should no longer equity account, but should account for the associate under IFRS 5. Any re-measurements following IFRS 5 classification will be presented as part of continuing operations in the income statement (unless the associate qualifies as discontinued). Additional disclosure will be required in order to explain the transaction. 7 Associate => subsidiary acquired with a view to resale The subsidiary must be consolidated, under IFRS 10. However, it is subject to paragraph 32 of IFRS 5 and should be accounted for as a discontinued operation under IFRS 5. The entire subsidiary is treated as a disposal group (and discontinued operation) under IFRS 5.

A component of an entity must have operations and cash flows that can be distinguished from the rest of the entity, both operationally and for financial reporting purposes. This means that a component would have been a CGU or group of CGUs (as defined by IAS 36).

Determining a component Assets, liabilities, revenue and expenses are directly attributable to a component if they would be eliminated if the component is sold, abandoned or otherwise disposed of. Interest and other finance expenses are attributed to the component only if the related debt is also attributed to the component. IFRS 5 requires only one figure for discontinued operations on the face of the income statement. However, it also requires supplementary disclosure of results down to the level of post-tax profit or loss. One of the IAS 35 Additional disclosure required to explain what will be retained. Any re-measurements following IFRS 5 classification will be presented as part of continuing operations in the income statement (unless the subsidiary qualifies as discontinued). Additional disclosure will be required in order to explain the transaction. criteria, that could be used to determine whether an operation qualifies as a discontinued operation, is that the revenue and a majority (at least) of the operating expenses of the operation that has been sold or terminated must be clearly distinguishable, for financial reporting purposes, from the rest of the group’s activities. If the supplementary disclosure can be given for an operation, this will be an indication that it meets the definition of a component in IFRS 5.

Classification as a discontinued operation (including subsidiaries that meet the definition of a discontinued operation) affects the presentation of the following:

Area	Impact
Income statement	Single line item comprising: ·        post-tax profit or loss of discontinued operations, and
Income statement or notes	An analysis of the single amount above into: revenue, expenses and pre-tax profit or loss of discontinued operations; the related income tax expense; and the gain or loss on remeasurement of the discontinued operations to fair value less costs to sell. The following amounts attributable to owners of the parent:

Statement of other comprehensive income No specific requirements for the presentation of other comprehensive income between continuing and discontinued operations. We believe that it would be consistent with the principles of IFRS 5 to separate discontinued operation items. Balance sheet No specific requirements but, if the disposal group is also classified as held for sale: non-current assets held for sale or assets of a disposal group held for sale are presented separately from other assets. Liabilities of a disposal group held for sale are presented separately from other liabilities. Cash flow statement or notes the following is presented either in the cash flow statement or in the notes: Net operating, investing and financing cash flows from discontinued operations. These disclosures are not required for newly acquired subsidiaries with a view to resale. The information above, except for the balance sheet, is re-presented in the comparative period for all operations that are discontinued by the end of the reporting period.

The information above, except for the balance sheet, is re-presented in the comparative period for all operations that are discontinued by the end of the reporting period.

Presentation and disclosure of IFRS 5

The overall presentation and disclosure objective of IFRS 5 is to 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).

Additional disclosures

IFRS 5 contains additional disclosures for non-current assets held for sale, including a description of the facts and circumstances that led to the disposal, the expected manner and timing of disposal, and the reportable segment in which the non-current asset is included under IFRS 8.

Common disclosure issues There is no requirement to split the amounts presented within assets and liabilities on the balance sheet between assets held for sale, disposal groups and discontinued operations. However, in order to be able to properly describe the non-current assets or disposal groups as required, some disaggregation is likely to be necessary in the notes to the financial statements. It is important to note that the disclosure requirements in relation to the balance sheet also apply to discontinued operations that are classified as held for sale.

An asset or disposal group that has been classified as held for sale might cease to be so classified, or particular assets or liabilities might be removed from a disposal group. The entity should disclose the reason for the change and the effect of the decision on the results of the current and prior periods. The ‘effect’ means any remeasurement under IFRS 5.