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Ind AS 105 - NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED

OPERATIONS

1. Entity ABC owns an item of property and it was stated at the following amounts in its last
financial statements:

31st March, 20X1 Rs.

Cost 12,00,000

Depreciation (6,00,000)

Net book value 6,00,000

The asset is depreciated at an annual rate of 10% i.e. Rs. 1,20,000 p.a.

Entity ABC closes its books as on 31st March each year. During July, 20X2, entity ABC
decides to sell the asset and on 1st August it meets the conditions to be classified as held for
sale. Analyse.

Solution:

At 31st July, entity ABC should ensure that the asset is measured in accordance with Ind AS 16.
It should be depreciated by further Rs. 4 0,000 (Rs. 1,20,000 x 4/12) and should be carried at Rs.
5,60,000 before it is measured in accordance with Ind AS 105.

2. S Ltd purchased a property for Rs. 6,00,000 on 1st April, 20X1. The useful life of the property
is 15 years. On 31st March, 20X3, S Ltd classified the property as held for sale. The
impairment testing provides the estimated recoverable amount of Rs. 4,70,000.

The fair value less cost to sell on 31st March, 20X3 was Rs. 4,60,000. On 31st March, 20X4
management changed the plan, as property no longer met the criteria of held for sale. The
recoverable amount as at 31st March, 20X4 is Rs. 5,00,000.

Provide the accounting treatment of events for the year ending 31st March, 20X3 and 31st
March, 20X4 and value the property at the end of 20X3 and 20X4.

Solution

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(a) Value of property immediately before the classification as held for sale as per Ind AS 16 as
on 31st March, 20X3 Rs.

Purchase Price 6,00,000

Less: Accumulated Depreciation 80,000 (for two years)

Less: Impairment loss 50,000 (5,20,000-4,70,000)

Carrying Amount 4,70,000

On initial classification as held for sale on 31st March, 20X3, the value will be lower of:

Carrying amount after impairment Rs. 4,70,000

Fair Value less Cost to sell Rs. 4,60,000

On 31st March, 20X3 Non-current asset classified as held for sale will be recorded at Rs. 4,60,000.

Depreciation of Rs. 40,000 and Impairment Loss of Rs. 60,000 (50,000 +10,000) is charged in
profit or loss for the year ended 31st March, 20X3.

(b) On 31st March, 20X4, held for sale property is reclassified as criteria doesn’t met. The value
will be lower of:

Carrying amount immediately before classification on 31st March, 20X3 Rs. 4,70,000

Less: Depreciation based on 13 years balance life (Rs. 36,154)

Carrying amount had the asset is not classified as held for sale Rs. 4,33,846

Recoverable Amount Rs. 5,00,000

Property will be valued at Rs. 4,33,846 on 31st March, 20X4

Adjustment to the carrying amount of Rs. 26,154 (Rs. 4,60,000 - 4,33,846) is charged to the profit
or loss.

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3. Identify whether each of the following scenarios gives rise to a discontinued operation
and/or classification of assets as held for sale:

Discontinu Assets
ed held for
operation sale
S. No Particulars Yes/No Yes/No
MNO disposes of a component of the entity by selling the
underlying assets. The sales transaction is incomplete at
1 the reporting date. Yes Yes
PQR has ceased activities that meet the definition of a
2 discontinued operation without selling any assets. Yes No
STU ceases activities and has already completed the sale
3 of the underlying assets at the reporting date. Yes No
VWX will sell or has sold assets that are within the scope
of Ind AS 105, but does not discontinue any of its
4 operations No Yes

4. Sun Ltd is a retailer of takeaway food like burger and pizzas. It decides to sell one of its
outlets located in Chandani Chowk in New Delhi. The company will continue to run 200
other outlets in New Delhi. All Ind AS 105 criteria for held for sale classification were first
met at 1st October, 20X1. The outlet will be sold in June, 20X2. Management believes that
outlet is a discontinued operation and wants to present the results of outlet as 'discontinued
operations'. Analysis

Solution: The Chandani Chowk outlet is a disposal group; it is not a discontinued operation as
it is only one outlet. It is not a major line of business or geographical area, nor a subsidiary
acquired with a view to resale.

5. On February 28, 20X1, Entity X becomes committed to a plan to sell a property. However, it
plans certain renovations to increase its value prior to selling it. The renovations are expected
to be completed within a short span of time i.e., 2 months.

Can the property be classified as held for sale at the reporting date i.e. 31st March, 20X1?

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Solution: The property cannot be classified as held for sale at the balance sheet date as it is not
available for sale immediately in its present condition. Although the renovations are expected to
be completed within a short span 2 months, this fact is not relevant for classification. The delay
in the timing of the transfer of the property imposed by the Entity X demonstrates that the
property is not available for immediate sale.

However, if the PPE meets the criteria for held for sale by 30th April, 20X1 (i.e., 2 months from
February 28, 20X1) and the accounts are not authorised by that date, then necessary disclosures
need to be given in the financial statements.

6. On 1st March, 20X1, entity R decides to sell one of its factories. An agent is appointed and the
factory is actively marketed. As on 31st March, 20X1, it is expected that the factory will be
sold by 28th February, 20X2. However, in May 20X1, the market price of the factory
deteriorated. Entity R believed that the market will recover and thus did not reduce the price
of the factory. The company’s accounts are authorised for issue on 26th June, 20X1. Should the
factory be shown as held for sale as on 31st March, 20X1?

Solution: In this example, the factory ceases to meet the definition of held for sale post the
balance sheet date but before the financial statements are authorised for issue, as it is not
actively marketed at a reasonable price. But, since the market conditions deteriorated post the
balance sheet date, the asset will be classified as held for sale as at 31st March, 20X1.

7. On 1st June, 20X1, entity X plans to sell a group of assets and liabilities, which is classified as
a disposal group. On 31st July, 20X1, the Board of Directors approves and becomes committed
to the plan to sell the manufacturing unit by entering into a firm purchase commitment with
entity Y. However, since the manufacturing unit is regulated, the approval from the
regulatoris needed for sale. The approval from the regulator is customary and highly
probable to be received by 30th November, 20X1 and the sale is expected to be completed by
31st March, 20X2. Entity X follows December year end. The assets and liabilities attributable
to this manufacturing unit are as under:

Carrying value as on
Carrying value as on 31st
31stJuly, 20X1 (Rs.)
Particulars December, 20X0 ((Rs.)
Goodwill 500 500

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Plant and Machinery 1,000 900

Building 2,000 1,850
Debtors 850 1,050
Inventory 700 400
Creditors -300 -250
Loans -2,000 -1,850
2,750 2,600
The fair value of the manufacturing unit as on 31st December, 20X0 is Rs. 2,000 and as on 31st
July, 20X1 is Rs. 1,850. The cost to sell is Rs. 100 on both these dates. The disposal group is
not sold at the period end i.e., 31st December, 20X1. The fair value as on 31st December, 20X1
is lower than the carrying value of the disposal group as on that date.

Required:

a. Assess whether the manufacturing unit can be classified as held for sale and reasons
there for. If yes, then at which date?
b. The measurement of the manufacturing unit as on the date of classification as held for
sale.
c. The measurement of the manufacturing unit as at the end of the year.

Solution:

Assessing whether the manufacturing unit can be classified as held for sale

The manufacturing unit can be classified as held for sale due to the following reasons:

(a) The disposal group is available for immediate sale and in its present condition. The
regulatory approval is customary and it is expected to be received in one year. The date at
which the disposal group must be classified as held for sale is 31st July, 20X1, i.e., the date
at which management becomes committed to the plan.
(b) The sale is highly probable as the appropriate level of management i.e., board of directors
in this case have approved the plan.
(c) A firm purchase agreement has been entered with the buyer.
(d) The sale is expected to be complete by 31st March, 20X2, i.e., within one year from the date
of classification.

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Measurement of the manufacturing unit as on the date of classification as held for sale

Following steps need to be followed:

Step 1:Immediately before the initial classification of the asset (or disposal group) as held for
sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall be
measured in accordance with applicable Ind AS.

This has been done and the carrying value of the disposal group as on 31st July, 20X1 is
determined at Rs. 2,600. The difference between the carrying value as on 31st December, 20X0
and 31st July, 20X1 is accounted for as per the relevant Ind AS.

Step 2: An entity shall measure a non-current asset (or disposal group) classified as held for sale
at the lower of its carrying amount and fair value less costs to sell. The fair value less cost to sell
of the disposal group as on 31st July, 20X1 is Rs. 1,750 (i.e.1,850-100). This is lower than the
carrying value of Rs. 2,600. Thus an impairment loss needs to be recognised and allocated first
towards goodwill and thereafter pro-rata between assets of the disposal group which are within
the scope of Ind AS 105 based on their carrying value. Thus, the assets will be measured as
under:

Carrying value as on31st Carrying value as on

Particulars December, 20X0 Impairment 31stJuly, 20X1
Goodwill 500 -500 -
Plant and
Machinery 900 -115 785
Building 1,850 -235 1615
Debtors 1,050 - 1,050
Inventory 400 - 400
Creditors -250 - -250
Loans -1,850 - -1,850
2,600 -850 1,750
Measurement of the manufacturing unit as on the date of classification as at the year end:

The measurement as at the year-end shall be on similar lines as done above.

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The assets and liabilities in the disposal group not within the scope of this Standard are
measured as per the respective Standards.

The fair value less cost to sell of the disposal group as a whole is calculated. This fair value less
cost to sell as at the year-end shall be compared with the carrying value as at the date of
classification as held for sale. It is provided that the fair value as on the year end is less than the
carrying amount as on that date – thus the impairment loss shall be allocated in the same way
between the assets of the disposal group falling within the scope of this standard as shown
above.

8. Following is the extract of the consolidated financial statements of A Ltd. for the year ended
on:

Carrying amount as
on 31stMarch, 20X1
Asset/ (liability) (In Rs. ‘000)
Attributed goodwill 200
Intangible assets 950
Financial asset measured at fair value through other
comprehensive income 300
Property, plant & equipment 1100
Deferred tax asset 250
Current assets –inventory, receivables and cash balances 600
Current liabilities -850
Non-current liabilities –provisions -300
Total 2,250
On 15th September 20X1, Entity A decided to sell the business. It noted that the business
meets the condition of disposal group classified as held for sale on that date in accordance
with Ind AS 105. However, it does not meet the conditions to be classified as discontinued
operations in accordance with that standard.

The disposal group is stated at the following amounts immediately prior to reclassification
as held for sale.

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Carrying amount as on
31st March, 20X1 (In Rs.
Asset/ (liability) ‘000)
Attributed goodwill 200
Intangible assets 930
Financial asset measured at fair value through other
comprehensive income 360
Property, plant & equipment 1020
Deferred tax asset 250
Current assets –inventory, receivables and cash balances 520
Current liabilities -870
Non-current liabilities –provisions -250
Total 2,160
Entity A proposed to sell the disposal group at Rs. 19,00,000. It estimates that the costs to sell
will be Rs. 70,000. This cost consists of professional fee to be paid to external lawyers and
accountants.

As at 31st March 20X2, there has been no change to the plan to sell the disposal group and
entity A still expects to sell it within one year of initial classification. Mr. X, an accountant of
Entity A remeasured the following assets/ liabilities in accordance with respective standards
as on 31st March 20X2:

Available for sale: (In Rs.‘000)

Financial assets 410
Deferred tax assets 230
Current assets-Inventory, receivables and cash
balances 400
Current liabilities 900
Non - current liabilities-provisions 250
The disposal group has not been trading well and its fair value less costs to sell has fallen to
Rs. 16,50,000.

Required:

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What would be the value of all assets/ liabilities within the disposal group as on the
following dates in accordance with Ind AS 105?

(a) 15 September, 20X1 and

(b) 31st March, 20X2

Solution:

(a) As at 15 September, 20X1The disposal group should be measured at Rs. 18,30,000 (19,00,000-
70,000). The impairment write down of Rs. 3,30,000 (Rs. 21,60,000 – Rs. 18,30,000) should be
recorded within profit from continuing operations.
The impairment of Rs. 3,30,000 should be allocated to the carrying values of the appropriate
non-current assets.

Revised
Carrying amount as on carrying
31stMarch, 20X1 (In value as per
Asset/ (liability) Rs. ‘000) Impairment IND AS 105
Attributed goodwill 200 -200 -
Intangible assets 930 -62 868
Financial asset measured at
fair value through other
comprehensive income 360 - 360
Property, plant & equipment 1020 -68 952
Deferred tax asset 250 - 250
Current assets –inventory,
receivables and cash balances 520 - 520
Current liabilities -870 - -870
Non-current liabilities –
provisions -250 - -250
Total 2,160 -330 1830
The impairment loss is allocated first to goodwill and then pro rata to the other assets of the
disposal group within Ind AS 105 measurement scope. Following assets are not in the

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measurement scope of the standard- financial asset measured at other comprehensive income,
the deferred tax asset or the current assets. In addition, the impairment allocation can only be
made against assets and is not allocated to liabilities.

(b) As on 31 March, 20X2:

All of the assets and liabilities, outside the scope of measurement under Ind AS 105, are
remeasured in accordance with the relevant standards. The assets that are remeasured in this
case under the relevant standards are the Financial asset measured at fair value through other
comprehensive income (Ind AS 109), the deferred tax asset (Ind AS 12), the current assets and
liabilities (various standards) and the non-current liabilities (Ind AS 37)

Change in
Carrying amount as value to Revised carrying
on 31stMarch, 20X1 31stMarch Impai value as per IND
Asset/ (liability) (In Rs. ‘000) 20X2 rment AS 105
Attributed goodwill - - - -
Intangible assets 868 - -29 839
Financial asset
measured at fair value
through other
comprehensive income 360 50 - 410
Property, plant &
equipment 952 -31 921
Deferred tax asset 250 -20 - 230
Current assets –
inventory, receivables
and cash balances 520 -120 - 400
Current liabilities -870 -30 - -900
Non-current liabilities –
provisions -250 - - -250
Total 1830 -120 -60 1650

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9. CK Ltd. prepares the financial statement under Ind AS for the quarter year ended 30th June,
20X1. During the 3 months ended 30th June, 20X1 following events occurred:

On 1st April, 20X1, the Company has decided to sell one of its divisions as a going concern
following a recent change in its geographical focus. The proposed sale would involve the
buyer acquiring the non-monetary assets (including goodwill) of the division, with the
Company collecting any outstanding trade receivables relating to the division and settling
any current liabilities

On 1st April, 20X1, the carrying amount of the assets of the division were as follows:

- Purchased Goodwill – Rs. 60,000

- Property, Plant & Equipment (average remaining estimated useful life two years) - Rs.
20,00,000

- Inventories - Rs. 10,00,000

From 1st April, 20X1, the Company has started to actively market the division and has
received number of serious enquiries. On 1st April, 20X1 the directors estimated that they
would receive Rs. 32,00,000 from the sale of the division. Since 1st April, 20X1, market
condition has improved and as on 1st August, 20X1 the Company received and accepted a
firm offer to purchase the division for Rs. 33,00,000.

The sale is expected to be completed on 30th September, 20X1 and Rs. 33,00,000 can be
assumed to be a reasonable estimate of the value of the division as on 30th June, 20X1.
During the period from 1st April to 30th June inventories of the division costing Rs. 8,00,000
were sold for Rs. 12,00,000. At 30th June, 20X1, the total cost of the inventories of the division
was Rs. 9,00,000. All of these inventories have an estimated net realisable value that is in
excess of their cost.

The Company has approached you to suggest how the proposed sale of the division will be
reported in the interim financial statements for the quarter ended 30th June, 20X1 giving
relevant explanations.

Solution:

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The decision to offer the division for sale on 1st April, 20X1 means that from that date the
division has been classified as held for sale. The division available for immediate sale, is being
actively marketed at a reasonable price and the sale is expected to be completed within one
year.

The consequence of this classification is that the assets of the division will be measured at the
lower of their existing carrying amounts and their fair value less cost to sell. Here the division
shall be measured at their existing carrying amount ie Rs. 30,60,000 since it is less than the fair
value less cost to sell Rs. 32,00,000.

The increase in expected selling price will not be accounted for since earlier there was no
impairment to division held for sale.

The assets of the division need to be presented separately from other assets in the balance sheet.
Their major classes should be separately disclosed either on the face of the balance sheet or in
the notes.

The Property, Plant and Equipment shall not be depreciated after 1st April, 20X1 so its carrying
value at 30th June, 20X1 will be Rs. 20,00,000 only. The inventories of the division will be shown
at Rs. 9,00,000.

The division will be regarded as discontinued operation for the quarter ended 30th June, 20X1.
It represents a separate line of business and is held for sale at the year end.

The Statement of Profit and Loss should disclose, as a single amount, the post-tax profit or loss
of the division on classification as held for sale.

Further, as per Ind AS 33, EPS will also be disclosed separately for the discontinued operation.

10. Identify which of the following is a disposal group at 31 March 20X1:

a. On 21 March 20X1, XYZ announced the Board’s intention to sell its shares in a subsidiary
company, Alpha, contingent upon the approval of Alpha’s shareholders. It seems
unlikely that approval will be granted in the near future and no specific potential buyer
has been identified.
b. PQR has entered into a contract to sell the entire delivery fleet of vehicles operated from
its warehouse to a competitor, ABC, on 14 March 20X1. The assets will be transferred on

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28 April 20X1 from which date the Group will outsource its delivery activities to another
company, LMN.
c. On 16 January 20X1, DEF’s management and shareholders approved a plan to sell its
retail business in Mumbai and a consultant is hired to manage the sale. As at 31
March20X1 heads of agreement had been signed although due diligence and the
negotiation of final terms are still in process. The transaction is expected to be completed
in April 20X1.

Solution:

Not presented as held for sale

a. XYZ’s shares in Alpha are not available for an immediate sale as shareholders’ approval is
required. Also no specific potential buyer has been identified. In taking these fact into
consideration for the assessment of whether the sale is highly probable, it is clearly not
highly probable

Presented as held for sale

b. PQR’s fleet is classified as held for sale because it constitutes a group of assets to be sold in
their present condition and the sale is highly probable at the reporting date (as a contract
has been entered into).
c. DEF’s sale of its retail business will not be completed until the final terms (e.g. of purchase
price) are agreed. However, the business is ready for immediate sale and the sale is highly
probable unless other evidence after the reporting date but before the financial statements
are approved for issue, comes to light to indicate the contrary..

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