OBJECTIVE

Non-Current assets held for sale are presented separately from other assets in the Balance Sheet as their classification will change. The value will be principally recovered through a sale transaction rather than through continuous use in operations of the entity. This standard mainly specifies the accounting for a assets held for sale.

Results of Discontinuing Operations should be separately is presented in Statement of Profit and loss as it is a affects the ability of the entity to mainly generate future cash flows. This standard specifies the presentation and disclosure of discontinued operations.

All about Ind AS 105 Non Current Assets & Discontinued Operations

The disclosure information provided in the standard enhances the ability of users of financial statements to make projections of an entity’s cash flows, earnings-generating capacity, and financial position by segregating information about held for sale assets and discontinued operations from the information about continuing operations.

SCOPE Ind AS 105 

The classification and presentation requirements apply to all recognized non-current assets and all disposal groups of an entity.

The measurement requirements of this Ind AS also apply to all recognized non-current assets and all disposal groups of an entity except few exceptions mentioned below.

Assets classified as non-current following Ind AS 1, Presentation of Financial Statements. This shall not be reclassified as current assets until it y meet the criteria to be classified as held for sale following this Ind AS.

The measurement, presentation and classification requirements of this Ind AS applicable to any non-current asset or a disposal group. That is been classified as a held for sale also apply to a non-current asset (or disposal group) which  is classified as a held for distribution to owners acting in their capacity as owners.

Scoped out non-current assets: The measurement provisions of this Ind AS do not apply to the following assets (which are covered by Ind AS listed either as individual assets or as part of a disposal group).

Disposal groups might include both scoped-in and scoped-out non-current assets. If a disposal group includes any scoped-in non-current asset(s), the measurement requirements of this type of Ind AS mainly apply to a  group as a whole, so that the group is been measured at lower of its carrying amount and fair value fewer costs to selling.

The disclosure requirements of this Ind AS, for non-current assets held for sale and discontinued operations, remove the need to provide disclosures following other standards, unless that standard has specific disclosure requirements:

– For non-current assets (or disposal group) classified held for sale or discontinued operations.

– For measurement of assets or liabilities within a disposal group that is not within the measurement scope of Ind AS 105 Non Current Assets & Discontinued Operations.

However, this does not remove the need to provide additional disclosures to comply with Ind AS.

RELEVANT DEFINITIONS Ind AS 105

The following are the key terms used in this standard:

A cash-generating type of unit is the smallest identifiable group of assets that generate cash inflows largely independent of the cash inflows which is received from other assets or groups of assets.

The component of an entity comprises operations and cash flows that can be distinguished, the operationally and for its financial reporting purposes, from the rest of the entity.

Costs for the distribution are the incremental costs directly attributable to the distribution, excluding finance costs and income tax expenses.

Costs to a sell that are the incremental costs directly to attributable to the disposal of an asset by excluding finance costs and income tax expenses.

Current asset – An entity classifies an asset as current when:

(a) It expects to realize any asset, or a intends to sell or a consume it, in its normal operating cycle.

(b) It holds the asset primarily for trading.

(c) It is expects to realize that asset within twelve months after the reporting period.

(d) The asset can be cash or a cash equivalent (as been defined in Ind AS)

7) Unless it is asset is restricted from exchanged or a used to mainly settle its liability for at least twelve months after it is reporting period.

A discontinued operation can be a component of any entity that either has been to disposed of or it is classified as held for sale.

(a) Represents as a separate major line of a business or geographical area of the business operations.

(b) Is part of a type of single coordinated plan to mainly dispose of a separate major line of a business or a geographical area of operations?

(c) Is a subsidiary acquired can be exclusive with a view to resale?

A disposal group is the group of assets that can be disposed of, by sale or otherwise, together as a group in a type of single transaction, and liabilities which is directly associated with those type pf assets that will be transferred in the transaction. A disposal group might be a group of cash-generating units, a single cash-generating unit, or part of a cash-generating unit.

The group also includes goodwill which is acquired in a business type combination if any group is a generating unit to which goodwill has been allocated following Ind AS 36 ‘Impairment of Assets,’ or if it is an operation within such a cash-generating unit.

Fair value is the price that can be received for selling an asset or paid to transfer its liability in an orderly type of transaction between market participants at the measurement date. (Ind AS 113)

Firm is purchase commitment is an agreement with an unrelated type of party, binding on a both parties and as usually legally enforceable, that are specifies all type of significant terms, including the price and a timing of the transactions,

and,

 (b) It mainly includes as a disincentive for a been non-performance that is sufficiently large. In order to make performance. It is highly probable.

Highly Probable Significantly more likely than a probable. (Probable means more likely than not)

Non-current assets are those assets which aren’t meeting the definition of current assets.

The recoverable amount is that the higher an asset’s fair value, the lower the costs to sell and its value in use.

Value in use is the present value of estimated future cash flows expected to arise from the existing continuing use of an asset and its disposal at the end of its useful life.

CLASSIFICATION OF NON-CURRENT ASSETS OR DISPOSAL GROUPS WHICH ARE HELD FOR SALE OR AS HELD FOR DISTRIBUTION TO OWNERS

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

Asset must be-

• Available for instant sale in its present condition.
• Sale must be highly probable

And are the two key requirements to classify a non-current asset as held for sale.

It may be noted that if an asset is being sold individually, Ind AS 105 applies only if it is a non-current asset. A current asset have being sold as an individual asset (i.e., not as part of a disposal group) is never classified as held for sale. Where a group of assets have being disposed of in a single transaction, its classification and presentation requirements apply to the disposal group as a whole, including current assets and liabilities forming part of the group.

Available for immediate sale:

The disposal group or asset must be available for instant sale in its present condition. The terms that are usual and customary for sale of similar assets (or disposal group) doesn’t disqualify

to be classified as held for sale.

However, they will not be considered available for immediate sale if they continue to be vital for the entity’s ongoing operations or are refurbished to enhance their value. Thus, an asset (or which are disposal group) cannot been classified as a non-current asset. (or disposal group) held for a sale if  entity intends to sell it in the distant future.

The sale must be highly probable:

This Standard defines ‘highly probable’ as ‘significantly more likely than probable,’ where possible means more likely than not.

Ind AS 105 prescribes the following five conditions :- 

This to be satisfied for sale to qualify as highly probable:

1. The appropriate management level must be committed to selling the asset (or disposal group).
2. An active program to trace a buyer and complete the selling plan must have been initiated.
3. The asset or disposal group which must be actively marketed for sale at a reasonable price concerning its current fair value.
4. The sale transaction is expected to be completed within one year from the date of classification.
5. Significant changes to or withdrawal from the plan to sell the asset are unlikely.

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

Other key points:

Loss of Control in Subsidiary-

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

The exception to the period of One year-

An entity can still classify an asset (or disposal group) as held for sale, even if the timeframe of one year to conclude the sale transaction has lapsed. For this:

(i)                 The delay must have been caused by events or circumstances beyond the entity’s control.

(ii)               There must be sufficient evidence that the entity is still committed to its selling plan.

Sale includes exchange-

Sale transaction includes exchanging non-current assets for other non-current assets when the exchange has commercial substance following are Ind AS 16 Property, Plant and Equipment.

Asset acquired exclusively with a view to subsequent disposal-

When an entity is acquiring a non-current asset (or disposal group) exclusively with a mainly view to its subsequent disposal. The non-current asset that are or disposal group is been classified as held for sale at the purchase date if both of the following conditions are satisfied:

a) The one-year requirement is met subject to exceptions mentioned in the section mentioned above.

b) It is highly probable that any other criteria not met at the acquisition date will be been met within a short period following are the acquisition (usually within three months).

Criteria met after reporting period-

Suppose the criteria held for sale are met after the reporting period. In that case, an entity should not be classifying a non-current asset or disposal group which are held for sales in those financial statements when it have been issued. However, when those criteria are meeting after the period of reporting but before the approval of the financial statements for the issue, the entity shall disclose the information specified in the section mentioned- Disclosures.

Classification as held for distribution-

An entity should be classify a non-current asset (or disposal group) as held for distribution to its owner on a parallel line as discussed above required for classification as held for sale.

Non-current assets to be abandoned in Ind AS 105

Non-current assets (or disposal groups) that need to be abandoned will not qualify as held for sale because their carrying amount will be principally recovered through continued use in the entity’s operation rather through the sale. However, the disposal of a group to be abandoned meets to meet the criteria as prescribed in Ind AS 105 to be classified as a discontinued operation. The disclosure regarding discontinued operation must be presented.

Non-current assets or disposal groups can be be abandoned which includes non-current assets or a disposal groups that are to be been used to the end of their type of economic life and a non-current assets (or disposal groups) that are been closed rather than sold.

Assets that are temporarily taken out of use are not to be accounted for as abandoned.

MEASUREMENT OF NON-CURRENT ASSETS OR DISPOSAL GROUPS WHICH ARE CLASSIFIED AS HELD FOR SALE

Measurement at the lower of carrying amount and fair value less cost to sell:

An entity should been measure as a non-current asset (or disposal group) classified as been held for its sale at the lower of its carrying amount and a fair value fewer costs to selling.

An entity should be measuring a non-current asset (or disposal group) classified as been held for a distribution to owners at the lower of its carrying amount and fair value fewer costs to distribute.

If a newly type of acquired asset or disposal group meets the criteria to be classified as held for sale, it will be measured on a initial recognition at lower of its carrying amount had it is not been so classified (for example, cost) and fair value fewer costs to selling.

Hence, if the asset or disposal group have been acquired as part of a business combination, it will be measured at fair value with fewer selling costs.

Instantly before any the initial classification of particular asset (or disposal group) as held for a sale, the carrying amounts of any asset (or all the assets and a liabilities in the group) are measured following applicable Ind AS.

On the subsequent measurement of a disposal group, is carrying amounts of any assets and a liabilities that are not been within the scope of any measurement requirements of this Ind AS 105, but are included in a disposal group classified as held for sale, should be premeasured following applicable Ind AS before the fair value fewer costs to the selling of the disposal group is premeasured.

When the sale is expected for occurring beyond one year, the entity should measure the sales costs at their present value. Any rise in the present value of a costs to mainly sell that arises from a passage of time shall been presented in a profit or loss as a financing cost.

Recognition of impairment losses and reversals:

An entity should be recognizing an impairment of loss for any of initial or a subsequent write-down of asset (or disposal group) to aa fair value fewer costs to sell, to the extent that it has not been recognized following subsequent measurement of scoped out assets and liabilities as mentioned above.

An entity should again recognize any subsequent increase in fair value fewer costs to selling an asset, but not above the cumulative impairment loss that has been recognized either following this Ind AS or previously following Ind AS 36, Impairment of Assets.

Depreciation and amortization shall be immediately stopped when the asset has been classified as held for sale.

Interest and other expenses which are attributable to the liabilities of a disposal group can be classified as a held for a sale shall continue to be recognized.

Summary in Ind AS 105 

An entity should recognize again for any subsequent increase in fair value fewer costs to the selling of a disposal group:

(a) To the extent that it have not been recognized in the measurement of scoped out non-current assets, current assets and liabilities.

(b) Not above the cumulative impairment loss that has been recognized, either following this Ind AS or previously following Ind AS 36, on the non-current assets that are within the scope of the measurement requirements of this Ind AS.

The impairment loss (or any subsequent gain) recognized for a disposal group should reduce or any increase the carrying amount of non-current assets in a  particular group that are been within the scope of any measurement requirements of this mention Ind AS 105. The impairment loss shall be allocated to disposal groups in the following order:

(i) First, is to reduce the holding carrying amount of any goodwill allocated to the disposal group.

(ii) Then to the recognise other assets of the disposal group pro-rata based on each asset’s carrying amount.

A gain or loss not previously recognized through measurement by the date of the sale of a non-current type of asset or disposal group  should be recognized at the date of recognition in Ind AS 105 Non Current Assets & Discontinued Operations.

Further details refer IND AS 105 MCA