D. PROPERTY, PLANT, AND EQUIPMENT 03 Held for Sale

Question 1

_{D. PROPERTY, PLANT, AND EQUIPMENT}

Assets Held for Sale

Criteria

Answer 1

Assets Held for Sale

Assets can be classified as being “held for sale” if certain criteria are met:

• Management has an active plan to sell the asset
• The sale is highly probable within a year
• The asset is available for sale in its current condition
• The company is marketing the asset for sale

Question 2

_{D. PROPERTY, PLANT, AND EQUIPMENT}

Assets Held for Sale

Reclassification

Answer 2

Assets being held for sale or disposal are

• kept on the books at the lower of the carrying amount or the fair value less any costs to sell.

Once listed as “held for sale” the asset is

• no longer depreciated, and
• they are listed under “other assets” on the balance sheet and not included with PPE.
• Impairment: If carrying value is greater than NRV (fair value less costs to sell), then a write down of the value is performed and a loss is recognized.

Question 3

_{D. PROPERTY, PLANT, AND EQUIPMENT}

Assets Held for Sale

Impairment

Answer 3

If carrying value is greater than NRV (fair value less costs to sell), then a write down of the value is performed and a loss is recognized.

Assets held for sale

• NRV = Fair value less cost to sell
• If CV > NRV then record a loss
• If CV < NRV then record a gain but only to the extent of losses previously recognized on write-downs

Example:

ABC chooses to sell equipment it had used in its operations. The equipment meets all the requirements to be listed as “held for sale”. The equipment has a carrying value of $200,000, a fair value of $180,000 and costs to sell of $10,000. Based on these facts, ABC would write down the equipment to $170,000 and recognize a
loss of $30,000.

Normal Balance:

Asset Cost 250

Acc depreciation 50

CV = 200 (250 - 50)

Journal Entry to write down (with NRV of 170):

Impairment Loss 30

Acc depreciation 30

Adjusted Normal Balance:

Asset Cost 250

Acc depreciation 80

Asset Held for Sale = 170

Another example:

A year after ABC listed the equipment as “held for sale”, it’s determined that the fair value of the equipment is now $220,000. ABC could recognize a gain, but only to the extent of the previous loss. So, ABC could recognize a gain of $30,00 and would list the equipment as “held for sale” at $200,000.

Normal Balance:

Asset Held for Sale = 170

Journal Entry to recognize gain (limited to amount of loss):

Asset Held for Sale 30

Gain on Asset 30

Adjusted Normal Balance:

Asset Held for Sale 200