Long-lived asset disposal and discontinued operation ASPE 3475 IFRS 5

Question 1

What are the six conditions for treating an
asset/division as held for sale (HFS)?

Answer 1

ASPE 3475 and IFRS 5

1. Management has committed to a plan to sell
2. Asset/division is available for immediate sale in present condition
3. Management has initiated active program
   to locate buyer
4. Sale is probable and expected to be complete within 1 year
5. Asset/Division is being actively marketed
   at reasonable price
6. Unlikely plan will be significantly changed
   or withdrawn

• Note that an asset to be abandoned would NOT be classified as held for sale

Question 2

What is the financial statement impact of
treating an asset as held for sale (HFS)?

Answer 2

ASPE 3475 and IFRS 5

• Measure at lower of:

1. Carrying Value and
2. Fair Value less cost to sell (commissions, legal fees,
   etc.)
   * No amortization of asset while classified HFS
   * Presented separately on the balance sheet

Question 3

What happens when an asset is written down to fair
value less cost to sell and the fair value subsequently
increases?

Answer 3

ASPE 3475
* The value of the asset is increased and a gain
recognized

• Gain cannot exceed the amount of the loss that was recognized when the asset was written down to fair value less cost to sell under this section
  i.e., any impairment losses recognized before the asset was classified as held for sale cannot be reversed

IFRS 5
* The value of the asset is increased and a gain
recognized

• Gain cannot exceed the amount of the loss that was recognized when the asset was written down to fair value less cost to sell under IFRS 5 plus any impairment losses previously recognized under
  IAS 36 i.e., any impairment losses recognized before the asset was classified as held for sale can be reversed

Question 4

What is the definition of a “component”?

Answer 4

ASPE 3475 and IFRS 5

• Cash flows and results of operations that
  can be clearly distinguished from rest of entity e.g.,
  division, branch, product line

Question 5

What are the conditions that must be met to treat a
component as a discontinued operation?

Answer 5

ASPE 3475 and IFRS 5

• Component has been disposed of or is classified
  as held for sale and either (one of the following):
  ‒ Represents a separate major line of business or
  geographic area of operations
  ‒ Is part of a single coordinated plan to dispose of a
  separate major line of business or geographic area of
  operations
  ‒ Is a subsidiary acquired exclusively with a view to
  resale

Question 6

What is the financial statement impact of
treating an operation as discontinued?

Answer 6

ASPE 3475
* Report results of discontinued ops (net of tax) as a separate element of income/loss

‒ Includes any loss on write-down of assets held for sale

‒ Does not include accrual of future operating losses of discontinued operation

IFRS 5
* Same with some additional disclosures

Question 7

What happens when there are changes to the plan of sale and an asset or group no longer meets the
criteria to classified as held for sale?

Answer 7

ASPE 3475
* Assets are reclassified as held and used and measured individually at the lower of:
‒ Carrying amount before it was classified as held for
sale adjusted for depreciation that would
have been taken if the asset had not be classified
as held for sale
‒ Fair value at the date of the decision
not to sell

IFRS 5
* Assets are reclassified as held and used and measured individually at the lower of:

‒ Carrying amount before it was classified as held for sale adjusted for depreciation that would have been taken if the asset had not be classified as held for sale
‒ Recoverable amount at the date of the decision not to sell (higher of fair value less costs to sell and value in use, where value in use would be PV of future cash flows)