Assets HFS & Discontinued Segments

Question 1

To be classified as HFS Asset

Answer 1

IFRS 5.7 must meet criteria:

For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.

For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The probability of shareholders’ approval (if required in the jurisdiction) should be considered as part of the assessment of whether the sale is highly probable.

Question 2

Measurement of HFS Asset

Answer 2

Lower of carrying value and fair value less costs to sell

IFRS 5.15

Question 3

If fair value goes up after recording

Answer 3

May increase up to point of prior loss that was recorded

Question 4

Depreciation

Answer 4

Asset depreciated up to the point it is reclassed to HFS. Then stopped.

Question 5

HFS on B/S

Answer 5

Reported separately to other assets

Question 6

Entry to record a HFS

Answer 6

DR HFS Asset (lower of fair value & carrying)
DR Impairment loss
CR Asset

Question 7

To be classified as a component

Answer 7

Must meet one of the following criteria:

• Represent a separate major line of business or geographical area of operations
• Is part of a single co-ordinated plan to dispose of a separate major line of business/ geog area
• It is a subsidiary acquired exclusively w/ a plan to resell

A component has cash flows distinguishable from the rest of the entity

Question 8

Criteria to record component as discontinued

Answer 8

• Does it meet component criteria

- Does it meet the HFS criteria

Question 9

Measurement of a discontinued component

Answer 9

Lower of carrying value and fair value less selling costs

Question 10

How to record income from discontinued operations

Answer 10

“Income from discontinued operations”
Report on separate line

Income up to date of decision
\+ Income after 
\+ Loss on write down to fair value less selling  costs
= "Income from discontinued operations" 
less taxes