Question Tag: Held for Sale

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  • 10 Marks

CR – May 2023 – L3 – Q4b – Events After the Reporting Period (IAS 10)

Advise on the correct accounting treatment and disclosures for Resource LTD’s sale.

At August 31, 2016, Evolve LTD controlled a wholly owned subsidiary, Resource LTD, whose only assets were land and buildings, measured in accordance with International Financial Reporting Standards.

On August 1, 2016, Evolve LTD published a statement stating that a binding offer for the sale of Resource LTD had been made and accepted, and at that date, the sale was expected to be completed by August 31, 2016. The non-current assets of Resource LTD were measured at the lower of their carrying amount or fair value less costs to sell at August 31, 2016, based on the selling price in the binding offer. This measurement was in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations.

However, Evolve LTD did not classify the non-current assets of Resource LTD as held for sale in the financial statements at August 31, 2016, because there were uncertainties regarding the negotiations with the buyer and a risk that the agreement would not be finalized. There was no disclosure of these uncertainties, and the original agreement was finalized on September 20, 2016.

Required:
Advise Evolve LTD on how the above transactions should be correctly dealt with in its financial statements with reference to relevant International Financial Reporting Standards. (10 Marks)

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  • 15 Marks

CR – Nov 2016 – L3 – Q6 – Events After the Reporting Period (IAS 10)

Discuss IFRS 5 requirements for non-current assets held for sale and evaluate event impacts per IAS 10.

Maranathan Plc acquired a property for N4 million with annual depreciation on a straight-line basis at 7.5%. An impairment loss of N350,000 was recognized as of May 31, 2013, with accumulated depreciation at N1 million. The property was classified as held for sale on October 1, 2013, with fair value less costs to sell of N2.4 million. In December 2013, interim financials reported an improved fair value less costs to sell of N2.52 million. By May 31, 2014, fair value increased to N2.95 million, and the property was eventually sold on June 5, 2014, for N3 million.

Required:

a. Assess these transactions per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of events on the property over time and on reported gain per IAS 10 Events After the Reporting Period. (10 Marks)

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  • 13 Marks

CR – May 2018 – L3 – SB – Q3b – Impairment of Assets (IAS 36)

valuate discontinuation conditions and prepare profit or loss statement for Bamgbose Plc with comparative figures.

Bamgbose Plc. is a long-established travel agent, operating through a network of retail outlets and online store. In recent years, the business has seen its revenue from the online store grow strongly, and that of retail outlets decline significantly. On July 1, 2017, the board decided to close the retail network at the financial year end of December 31, 2017, and put the buildings up for sale on that date. The directors are seeking advice regarding the treatment of the buildings in the statement of financial position as well as the treatment of the trading results of the retail division for the year. The following figures are available at December 31, 2017:

  • Carrying amount of buildings: ₦30.0 million
  • Fair value less costs to sell of buildings: ₦25.8 million
  • Other expected costs of closure: ₦5.85 million

Required:

(i) Outline the conditions which must be met in order to present the results of an operation as “discontinued” and the accounting treatment that applies when such a classification is deemed appropriate. (5 Marks)

(ii) Draft the statement of profit or loss for Bamgbose Plc. for year ended December 31, 2017, together with the comparative figures for 2016, taking the above information into account. (8 Marks)

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  • 7 Marks

CR – May 2018 – L3 – SB – Q3a – Impairment of Assets (IAS 36)

Outline conditions for classifying assets as held for sale and their accounting treatment under IFRS 5.

(a) “IFRS 5 Non-current Asset held for Sale and Discontinued Operations” sets out the principles governing the measurement and presentation of non-current assets that are expected to be realized through sale rather than through continuing use. The standard also deals with reporting the results of operations that qualify as discontinued.

Required:

Discuss the conditions which must be met for a non-current asset to be classified as being “held for sale” and explain the accounting treatment that applies when such a classification is deemed appropriate. (7 Marks)

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  • 7 Marks

FR – May 2021 – L2 – Q3a – Impairment of Assets (IAS 36)

Discuss conditions to classify non-current assets as held for sale under IFRS 5.

International Financial Reporting Standards (IFRS 5) on Non-Current Assets held for Sale and Discontinued Operations specifies the accounting treatment for assets held for sale and disclosure of discontinued operations.

Required:
Discuss the conditions which must exist in order to classify a Non-Current Asset as being held for sale and explain the accounting treatments that apply when such classification is deemed appropriate.

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  • 15 Marks

FR – May 2017 – L2 – SB – Q6 – Non-Current Assets Held for Sale

Explain conditions for assets held for sale, identify impairment, and allocate impairment loss for a disposal group.

a. IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations set out requirements that specify the accounting treatment for assets held for sale and the presentation and disclosure of discontinued operations.

Required:

  1. Explain the conditions that must apply at the reporting date for an asset (or disposal group) to be classified as held for sale and how the assets can be measured.
    (5 Marks)

b.

  1. Explain how impairment of asset should be identified and accounted for at the end of a reporting period.
    (4 Marks)
  2. A company has decided to dispose of a group of its assets. The carrying amounts of the assets immediately before the classification as held for sale were as follows:
    Asset Amount (₦)
    Goodwill 800,000
    Property, plant and equipment (revalued amounts) 3,050,000
    Property, plant and equipment (at cost) 3,200,000
    Inventory 840,000
    Other current assets 700,000
    Total 8,590,000

    The company estimates that the “fair value less cost to sell” of the disposal group is ₦6,400,000.

    Required:
    Calculate the impairment loss and its allocation to the non-current assets in the disposal group.
    (6 Marks)

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  • 4 Marks

FR – May 2021 – L2 – Q2a(ii) – Accounting for Non-current Assets Held for Sale under IFRS 5

Demonstrate how to account for a transaction under IFRS 5 involving non-current assets held for sale.

In accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, demonstrate how to account for the following transaction.

On 1 April 2016, Gologo Ltd purchased an equipment at a cost of GH¢450,000. It is being depreciated on a straight line basis over its useful economic life of 15 years. The reporting date of Gologo Ltd is 31 March. At 31 December 2020, the equipment was no longer needed by the entity. It was decided that the asset should be sold, and a buyer was being sought. The asset is advertised for sale at a price of GH¢275,000, which was a reasonable reflection of its fair value. It is anticipated that a transportation cost of GH¢30,000 will be incurred to deliver the item to the buyer. The sale is expected to occur within one year.

Required:
ii) Demonstrate how to account for the above transaction on 31 March 2021 in accordance with IFRS 5.
(4 marks)

 

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  • 5 Marks

FR – Nov 2016 – L2 – Q2e – Preparation of Financial Statements

Discuss how a plant classified as held for sale should be accounted for under IFRS 5.

Sofoline Ltd has a plant which cost GH¢40,000 and was purchased on 1 January 2013 with a useful life of 10 years. The plant was being used as part of its business operating capacity. On 30 June 2015, Sofoline Ltd made a decision to classify the plant as held for sale and an agent was appointed for the sale of the plant, which started being advertised at a selling price of GH¢29,000, which was considered to be its fair value. The selling expenses are estimated to be GH¢1,500. The asset has not yet been sold by the year-end of 31 December 2015, and it has a fair value less cost to sell of GH¢24,000 on this date.

Required:
Discuss how this will be accounted for in the financial statements of Sofoline Ltd for the year ended 31 December 2015 in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

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  • 2 Marks

FR – May 2018 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identify the criteria to be met for an asset to be classified as held for sale in accordance with IFRS 5.

In accordance with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations, a non-current asset (disposal group) is classified as “held for sale” if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. However, to qualify to be classified as held for sale, a detailed criteria must be met.

Required:
Identify any TWO criteria to be met before an asset can be classified as held for sale. (2 marks)

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  • 5 Marks

CR – May 2018 – L3 – Q2d – IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

Explain whether certain scenarios meet the criteria for classification as discontinued operations under IFRS 5.

Explain with justification, whether each of the following could most likely be classified as a discontinued operation under IFRS 5: Non-current Assets Held for Sale and Discontinued Operations in this year’s financial statements:
i) A reportable operating segment that met the definition of held for sale after the year-end but before the financial statements were authorised for issue. (1 mark)
ii) A reportable operating segment that was closed down during the financial year. The assets of the segment were broken up and used in other divisions of the company. (2 marks)
iii) A division of a business, classified as held for sale, that was correctly treated as a discontinued operation in last year’s financial statements, but which has not been sold by this year-end due to the sale being referred to the National Insurance Commission, which regulates the insurance industry. The commission is not expected to report its findings until 6 months after this year-end. (2 marks)

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  • 10 Marks

CR – May 2023 – L3 – Q4b – Events After the Reporting Period (IAS 10)

Advise on the correct accounting treatment and disclosures for Resource LTD’s sale.

At August 31, 2016, Evolve LTD controlled a wholly owned subsidiary, Resource LTD, whose only assets were land and buildings, measured in accordance with International Financial Reporting Standards.

On August 1, 2016, Evolve LTD published a statement stating that a binding offer for the sale of Resource LTD had been made and accepted, and at that date, the sale was expected to be completed by August 31, 2016. The non-current assets of Resource LTD were measured at the lower of their carrying amount or fair value less costs to sell at August 31, 2016, based on the selling price in the binding offer. This measurement was in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations.

However, Evolve LTD did not classify the non-current assets of Resource LTD as held for sale in the financial statements at August 31, 2016, because there were uncertainties regarding the negotiations with the buyer and a risk that the agreement would not be finalized. There was no disclosure of these uncertainties, and the original agreement was finalized on September 20, 2016.

Required:
Advise Evolve LTD on how the above transactions should be correctly dealt with in its financial statements with reference to relevant International Financial Reporting Standards. (10 Marks)

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  • 15 Marks

CR – Nov 2016 – L3 – Q6 – Events After the Reporting Period (IAS 10)

Discuss IFRS 5 requirements for non-current assets held for sale and evaluate event impacts per IAS 10.

Maranathan Plc acquired a property for N4 million with annual depreciation on a straight-line basis at 7.5%. An impairment loss of N350,000 was recognized as of May 31, 2013, with accumulated depreciation at N1 million. The property was classified as held for sale on October 1, 2013, with fair value less costs to sell of N2.4 million. In December 2013, interim financials reported an improved fair value less costs to sell of N2.52 million. By May 31, 2014, fair value increased to N2.95 million, and the property was eventually sold on June 5, 2014, for N3 million.

Required:

a. Assess these transactions per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of events on the property over time and on reported gain per IAS 10 Events After the Reporting Period. (10 Marks)

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  • 13 Marks

CR – May 2018 – L3 – SB – Q3b – Impairment of Assets (IAS 36)

valuate discontinuation conditions and prepare profit or loss statement for Bamgbose Plc with comparative figures.

Bamgbose Plc. is a long-established travel agent, operating through a network of retail outlets and online store. In recent years, the business has seen its revenue from the online store grow strongly, and that of retail outlets decline significantly. On July 1, 2017, the board decided to close the retail network at the financial year end of December 31, 2017, and put the buildings up for sale on that date. The directors are seeking advice regarding the treatment of the buildings in the statement of financial position as well as the treatment of the trading results of the retail division for the year. The following figures are available at December 31, 2017:

  • Carrying amount of buildings: ₦30.0 million
  • Fair value less costs to sell of buildings: ₦25.8 million
  • Other expected costs of closure: ₦5.85 million

Required:

(i) Outline the conditions which must be met in order to present the results of an operation as “discontinued” and the accounting treatment that applies when such a classification is deemed appropriate. (5 Marks)

(ii) Draft the statement of profit or loss for Bamgbose Plc. for year ended December 31, 2017, together with the comparative figures for 2016, taking the above information into account. (8 Marks)

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  • 7 Marks

CR – May 2018 – L3 – SB – Q3a – Impairment of Assets (IAS 36)

Outline conditions for classifying assets as held for sale and their accounting treatment under IFRS 5.

(a) “IFRS 5 Non-current Asset held for Sale and Discontinued Operations” sets out the principles governing the measurement and presentation of non-current assets that are expected to be realized through sale rather than through continuing use. The standard also deals with reporting the results of operations that qualify as discontinued.

Required:

Discuss the conditions which must be met for a non-current asset to be classified as being “held for sale” and explain the accounting treatment that applies when such a classification is deemed appropriate. (7 Marks)

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  • 7 Marks

FR – May 2021 – L2 – Q3a – Impairment of Assets (IAS 36)

Discuss conditions to classify non-current assets as held for sale under IFRS 5.

International Financial Reporting Standards (IFRS 5) on Non-Current Assets held for Sale and Discontinued Operations specifies the accounting treatment for assets held for sale and disclosure of discontinued operations.

Required:
Discuss the conditions which must exist in order to classify a Non-Current Asset as being held for sale and explain the accounting treatments that apply when such classification is deemed appropriate.

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  • 15 Marks

FR – May 2017 – L2 – SB – Q6 – Non-Current Assets Held for Sale

Explain conditions for assets held for sale, identify impairment, and allocate impairment loss for a disposal group.

a. IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations set out requirements that specify the accounting treatment for assets held for sale and the presentation and disclosure of discontinued operations.

Required:

  1. Explain the conditions that must apply at the reporting date for an asset (or disposal group) to be classified as held for sale and how the assets can be measured.
    (5 Marks)

b.

  1. Explain how impairment of asset should be identified and accounted for at the end of a reporting period.
    (4 Marks)
  2. A company has decided to dispose of a group of its assets. The carrying amounts of the assets immediately before the classification as held for sale were as follows:
    Asset Amount (₦)
    Goodwill 800,000
    Property, plant and equipment (revalued amounts) 3,050,000
    Property, plant and equipment (at cost) 3,200,000
    Inventory 840,000
    Other current assets 700,000
    Total 8,590,000

    The company estimates that the “fair value less cost to sell” of the disposal group is ₦6,400,000.

    Required:
    Calculate the impairment loss and its allocation to the non-current assets in the disposal group.
    (6 Marks)

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  • 4 Marks

FR – May 2021 – L2 – Q2a(ii) – Accounting for Non-current Assets Held for Sale under IFRS 5

Demonstrate how to account for a transaction under IFRS 5 involving non-current assets held for sale.

In accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, demonstrate how to account for the following transaction.

On 1 April 2016, Gologo Ltd purchased an equipment at a cost of GH¢450,000. It is being depreciated on a straight line basis over its useful economic life of 15 years. The reporting date of Gologo Ltd is 31 March. At 31 December 2020, the equipment was no longer needed by the entity. It was decided that the asset should be sold, and a buyer was being sought. The asset is advertised for sale at a price of GH¢275,000, which was a reasonable reflection of its fair value. It is anticipated that a transportation cost of GH¢30,000 will be incurred to deliver the item to the buyer. The sale is expected to occur within one year.

Required:
ii) Demonstrate how to account for the above transaction on 31 March 2021 in accordance with IFRS 5.
(4 marks)

 

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  • 5 Marks

FR – Nov 2016 – L2 – Q2e – Preparation of Financial Statements

Discuss how a plant classified as held for sale should be accounted for under IFRS 5.

Sofoline Ltd has a plant which cost GH¢40,000 and was purchased on 1 January 2013 with a useful life of 10 years. The plant was being used as part of its business operating capacity. On 30 June 2015, Sofoline Ltd made a decision to classify the plant as held for sale and an agent was appointed for the sale of the plant, which started being advertised at a selling price of GH¢29,000, which was considered to be its fair value. The selling expenses are estimated to be GH¢1,500. The asset has not yet been sold by the year-end of 31 December 2015, and it has a fair value less cost to sell of GH¢24,000 on this date.

Required:
Discuss how this will be accounted for in the financial statements of Sofoline Ltd for the year ended 31 December 2015 in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

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  • 2 Marks

FR – May 2018 – L2 – Q2e – Financial Reporting Standards and Their Applications

Identify the criteria to be met for an asset to be classified as held for sale in accordance with IFRS 5.

In accordance with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations, a non-current asset (disposal group) is classified as “held for sale” if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. However, to qualify to be classified as held for sale, a detailed criteria must be met.

Required:
Identify any TWO criteria to be met before an asset can be classified as held for sale. (2 marks)

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  • 5 Marks

CR – May 2018 – L3 – Q2d – IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

Explain whether certain scenarios meet the criteria for classification as discontinued operations under IFRS 5.

Explain with justification, whether each of the following could most likely be classified as a discontinued operation under IFRS 5: Non-current Assets Held for Sale and Discontinued Operations in this year’s financial statements:
i) A reportable operating segment that met the definition of held for sale after the year-end but before the financial statements were authorised for issue. (1 mark)
ii) A reportable operating segment that was closed down during the financial year. The assets of the segment were broken up and used in other divisions of the company. (2 marks)
iii) A division of a business, classified as held for sale, that was correctly treated as a discontinued operation in last year’s financial statements, but which has not been sold by this year-end due to the sale being referred to the National Insurance Commission, which regulates the insurance industry. The commission is not expected to report its findings until 6 months after this year-end. (2 marks)

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