Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

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

Indian equivalent: Ind AS 105 - Non-current Assets Held for Sale and Discontinued Operations

Objective and scope

IFRS 5 explains how to account for long-term assets (or whole divisions) a company has decided to sell, and how to present a business being sold or shut down separately, so readers can see the continuing business clearly.

Core principle

When a company decides to sell a factory or exit a business line, that asset stops being a normal working asset. IFRS 5 pulls it out, stops depreciation, carries it at the lower of book value and expected sale proceeds, and shows the exiting business separately.

Defined terms and technical terminology

Term	Technical meaning
Held for sale	An asset whose value will be recovered mainly through sale, not continued use - available for immediate sale with a highly probable sale within 12 months.
Discontinued operation	A major line of business or geographical area disposed of or held for sale.
Highly probable	Significantly more likely than probable - management committed, actively marketing at a reasonable price.
Disposal group	A group of assets (and related liabilities) to be sold together in a single transaction.

Application and worked illustrations

Held-for-sale criteria and their effect

An asset (or disposal group) is classified held for sale when it is available for immediate sale in its present condition and the sale is highly probable within a year (management committed, active marketing, reasonable price, unlikely to change). Once classified, you stop depreciating it and carry it at the lower of carrying amount and fair value less costs to sell, presenting it separately on the balance sheet.

Worked example

RetailGroup decides to sell its loss-making electronics division. The division's assets have a book value of ₹80 lakh but can only be sold for ₹65 lakh (less ₹2 lakh costs = ₹63 lakh). It is reclassified held for sale at ₹63 lakh, recognising a ₹17 lakh write-down; depreciation stops. As a major line of business, its results are shown as a discontinued operation - a single separate line (net of tax) in the profit statement - so investors can assess the continuing business without the noise of the part being sold.

Journal entry - Write down disposal group to fair value less costs to sell
Account	Debit (₹)	Credit (₹)
Impairment loss (P&L)	17,00,000
Assets held for sale		17,00,000

Common mistake: continuing to depreciate an asset once it is classified held for sale. Depreciation stops on classification.

IND AS LINK

Ind AS 105 aligns with IFRS 5 - same held-for-sale measurement and discontinued-operation presentation.

Further worked illustrations

Extra numeric example - a disposal group with a gain cap

A division held for sale has assets of ₹90,00,000 and is expected to sell for ₹1,10,00,000. You do not write it up to ₹1.1 crore - IFRS 5 measures at the lower of carrying amount and fair value less costs to sell, so it stays at ₹90,00,000. The rule only ever forces a write-down, never a gain, before the actual sale.

INDIAN REGULATORY CONTEXT

Indian conglomerates frequently announce plans to sell non-core units. Once a division meets the held-for-sale criteria under Ind AS 105 (board-committed, actively marketed, sale highly probable within a year), its results are shown as a discontinued operation - a single net-of-tax line - so analysts can value the continuing group separately from the business being exited.

TECHNICAL EDGE CASE

A company classified a division as held for sale, but a year passes without a buyer. Does classification lapse? Not necessarily - if the delay is caused by events beyond the company's control and it remains committed to selling (e.g., regulatory approval is pending), IFRS 5 allows the held-for-sale classification to continue beyond 12 months. But if the company has quietly given up or changed the terms unreasonably, it must be reclassified back to a normal held-and-used asset, with depreciation catch-up.