NCAHFS/NCAHFDTO/DO Flashcards
What is non-current asset held for sale? (NCAHFS)
- These are non-current assets if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
Example 1:
- The asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets. Usual in this case refers to the usual procedure when a company wants to sell their building for example. When they do, the usual procedure is to clear the building. During this time of clearing of the building, it is allowed and the building will be classified as held for sale because it is part of the normal procedure.
- If the entity needs to wait for another building to be renovated before clearing the existing building that they wish to sell, this is not part of the normal procedure. This time taken to wait for the new building to be renovated will not be allowed. Hence, the existing building will not be classified as held for sale because the building is not available for immediate sale.
Example 2:
Let’s say that an entity want to sell a factory that manufactures goods. However, when the entity wants to sell it to the customer even though it still have unfinished business with the factory, i.e. unfinished customer orders, the entity can continue to do so. Their new customer taking over the factory will handle the unfinished business with the customers. The factory can be classified as held for sale.
On the other hand, if the entity wants to complete the unfinished business with its customer before selling the factory to other customers, the timing taken to do this unfinished is not allowed. Thus, this factory will not be classified as held for sale.
Example 3:
If all the conditions for held for sale is met but the entity is reluctant to adjust its selling price in relation to its current fair value, they cannot classify the non-current asset as held for sale.
(br)
- Its sale must be highly probable.
- A non-current asset is available for immediate sale if an entity currently has the intention and ability to transfer the asset to a buyer in its present condition.
What are non-current assets held for distribution to owners? (NCAHFDTO)
- There are non-current assets and it is when the entity is committed to distribute the asset to the owners.
- The assets must be available for immediate distribution in their present condition.
- The distribution must be highly probably.
What are the two main criteria for an asset to be held for sale or held for distribution?
- The asset must be available for immediate sale or distribution in its present condition.
- The sale or distribution must be highly probable.
What does highly probable mean?
For sale to be highly probable:
- The appropriate level of management must be committed to a plan to sell the asset.
- The management must have initiated an active program to locate a buyer and complete the plan.
- The asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value.
- The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
- The 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.
For distribution to be highly probable:
- The actions to complete the distribution must have been initiated.
- The actions to complete the distribution should be expected to be completed within one year from the date of classification.
- The actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn.
- Apart from all these points, the probability of shareholder’s approval, if required by the jurisdiction, should be considered as part of the assessment of whether the distribution is highly probable.
How to account for the assets are classification as held for sale (Measurements and steps)
- Measure the assets at lower of either the:
- Carrying amount
- Fair Value less costs to sell
- Recognize any impairment loss for initial or subsequent write-down of the asset to fair value less costs to sell.
- Recognize a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized previously.
- Do not depreciate the asset at this point of time since it is held for sale.
- Present the asset separately from other assets in the statement of financial position.
How to account for the assets are classification as held for distribution to owners (Measurements and steps)
- The entity shall measure the asset at the lower of its carrying amount and fair value less costs to distribute.
- The cost to distribute are the incremental costs directly attributable to the distribution, excluding finance costs and income tax expense.
- Same measurements as NCAHFS.
How to measure for when there is a change to the plan of sale or to a plan of distribution to owners?
This means: The entity has already classified an asset as held for sale or held for distribution to owners but the two criteria are no longer met.
To measure this situation:
The entity shall measure the asset at the lower of:
- Its original carrying amount before the asset was classified as held for sale or distribution to owners, adjusted for any depreciation, amortization or revaluations that would have been recognized had the asset not been classified as held for sale or held for distribution to owners.
- Its recoverable amount at the date of the subsequent decision not to sell or distribute.
What are the exceptions for the sale of transaction to be completed beyond one year?
- If the period is extended as a result of events or circumstances beyond an entity’s control, and there is sufficient evidence that the entity remains committed to its plan to sell the asset, the asset can continue to be classified as held for sale after the one-year period.
- There is a need to see if the entity is actively adapting to the market conditions. Initially when the entity is not able to sell of their building because of deterioration in the market conditions, if the entity is actively trying to source for buyers and is also revising their price that is reasonable as compared to the market conditions, the asset would continue to be classified as held for sale at the end of the one-year period.
- On the other hand, if the entity is not willing to revise the price to market conditions as they believe that market conditions will improve, the asset should cease to be classified as held for sale after the one-year period. This case will be seen as the asset is not available for immediate sale.
What is a discontinued operation?
It is a component of an entity comprising a major line of business, or geographical area of operations, that has been disposed of, or is classified as held for sale.
What is not considered as discontinued operations:
- Disposal of part of a major line of business.
- Phasing out of a product line or class of service
- Shifting product line from one location to another.
What is a discontinued operation?
It is a component of an entity comprising a major line of business, or geographical area of operations, that has been disposed of, or is classified as held for sale.
What is not considered as discontinued operations:
- Disposal of part of a major line of business.
- Phasing out of a product line or class of service
- Shifting product line from one location to another.
How do we measure discontinued operations?
- The assets and liabilities are to be measured at lower of carrying amount and fair value less costs to sell.
- The non-current assets should not be depreciated.
