Ind AS 105 Held for Sale and Discontinued Operations MAY 18, 2017

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1 Ind AS 105 Held for Sale and Discontinued Operations MAY 18, 2017

2 Agenda Scope Held for sale Discontinued Operation Reclassification The Closing

Balance sheet Scope of Ind AS 105 Measurement exclusions Deferred tax assets Ind AS 12 Held for sale Measurement Presentation Disclosure Discontinued

value less costs to sell Contractual rights under insurance contracts Ind AS 41 Ind AS104 IFRS 5 deals with non-current assets that are accounted for in

3 Balance sheet Scope of Ind AS 105 Measurement exclusions Deferred tax assets Ind AS 12 Held for sale Measurement Presentation Disclosure Discontinued operations Presentation Disclosure Statement of profit and loss Employee benefit assets Ind AS 19 Financial assets Ind AS 39 Biological assets at fair value less costs to sell Contractual rights under insurance contracts Ind AS 41 Ind AS104 IFRS 5 deals with non-current assets that are accounted for in accordance with the fair value model in IAS 40, Investment Property. Since Ind AS 40 prohibits the use of fair value model, this paragraph is deleted in Ind AS 105.

4 Non-current asset or disposal group Non-current asset or Disposal group Dispose of together in a single transaction

5 Held for sale classification criteria Carrying amount to be recovered principally through sale Available for immediate sale in current condition (Ind AS 105 clarifies that noncurrent asset (or disposal group) cannot be classified as held for sale, if the entity intends to sell it in a distant future) & Sale is highly probable Management committed to plan to sell Actively marketing at reasonable price Significant changes to plan unlikely Sale expected within 1 year of date of classification

6 1-year deadline can be extended Delay caused by events and circumstances beyond ABC Limited s control & Sufficient evidence exists that ABC Limited remains committed to its plan to sell

7 Case studies: Held for sale Vs Held for use: A buyer is identified for Packaging Factory and a formula for the price is agreed However, financial information emerges that leads ABC Limited to suspect that the final agreed price will be significantly below the price at which it is willing to sell Packaging Factory Therefore, ABC Limited begins to consider alternatives to selling Packaging Factory Is Packaging Factory held for sale? What if the entity is required to obtain regulatory approval? Regulatory approvals The sale of significant non-current assets or disposal groups may also be subject to regulatory approval. Depending on particular circumstances, regulatory approval may be considered SUBSTANTIVE or, on the contrary, viewed as a FORMALITY. If the pending regulatory approval does not prevent the sale from being highly probable, then it may not necessarily prevent the classification of the noncurrent assets or disposal groups as held-for-sale.

8 Is the available for immediate sale test met in each scenario? 1 ABC Limited needs to vacate Factory Fine-Packaging Yes (Usual and customary) 2 ABC Limited needs to construct a new factory to move into prior to vacating No (Not readily available for sale) 3 ABC Limited intends to transfer operations within the disposal group, including uncompleted orders Yes 4 ABC Limited intends to transfer operations within the disposal group and transfer only after orders are complete / operations ceased No (Not readily available for sale)

9 Case studies: Held for sale Key dates 16 April ABC Limited decides to sell Factory Fine-Print 30 June Agent appointed and price set at appraised fair value 30 September The market has deteriorated, but ABC Limited holds the selling price, believing that the market will recover shortly 31 December Factory Fine-Print not sold at the end of the reporting period 15 April Financial statements authorised for issue Should Factory Fine-Print be classified as held for sale in the 31st March financial statements? ` NO (Not being actively marketed at a reasonable price)

10 Initial measurement Immediately before classification as held for sale, measure in accordance with relevant Ind ASs On classification, measure at lower of carrying amount and fair value less costs to sell Assets not depreciated / amortised Losses allocated to (1) goodwill then (2) non-current assets in measurement scope pro rata

11 Subsequent remeasurement Reassess fair value less costs to sell Further losses allocated to (1) goodwill then (2) noncurrent assets in measurement scope on pro rata basis Gains limited to previous impairment losses

12 Presentation and disclosure Current classification Description Assets and liabilities Comparatives not restated Accounting policies

13 Classification criteria Component: operations and cash flows distinguishable operationally and for financial reporting Disposed of or Classified as held for sale Separate major line of business or geographical area or Part of a single plan to dispose of a major line of business or geographical area or Subsidiary acquired exclusively with view to resale

14 A question for you: Discontinued operations Key dates -- Fine-Packaging is an operating segment 1 st February ABC Limited decides to sell Fine-Packaging and focus on its core operations 1 st March Agent appointed and price set at appraised fair value Sale is expected within 1 year 31 st March Fine-Packaging not sold at the end of the reporting period 15 th June Financial statements authorised for issue

15 A question for you: Classification Continuing the previous question In March a buyer is identified and a firm purchase commitment is received However, regulatory authorities unexpectedly require that the buyer dispose of certain operations before it completes the acquisition This requirement is expected to delay completion of the disposal by over 12 months What impact does this delay have on classification in the financial statements?

16 Presentation and disclosure Separate from continuing Description Income and expenses Cash flows Comparatives re-presented Accounting policies

17 Reclassification Held for use Continuing operations Measure as if never classified as held for sale, including goodwill Re-present comparatives

18 Case studies: Held for sale Vs Held for use ABC Limited wishes to sell some mining equipment that is in a disused mine. No (Not readily available for sale ) ABC Limited has placed an order for a new ship in exchange of an old ship. Is the old ship held for sale? Yes ABC Limited owns a mine. When the minerals are exhausted, it will abandon the mine. No (Held for use)

19 Points to remember Held for sale when available for immediate sale and sale is highly probable Held for sale measurement at lower of carrying amount and fair value less costs to sell Held for sale = statement of financial position. Do not restate Discontinued operation is major component of operations disposed of or held for sale Discontinued = statement of comprehensive income. Re-present comparatives

20 Thank you CA S K JEGADESAN SKJEGADESAN@GMAIL.COM MOBILE:

IFRS-5: Non-current Assets Held for Sale and Discontinued Operations

IFRS-5: Non-current Assets Held for Sale and Discontinued Operations The journal is running a series of updates on IFRS, IAS, IFRIC and SIC. The updates mostly collected from different sources of IASB publication, seminars, workshop & IFRS website. This issue is based on