When should a non-current asset be classified as held for sale?

IPSASB issued ED 79 on Proposed IPSAS on Non-current Assets Held for Sale and Discontinued Operations to provide guidance on the sale of assets. ED 79 also applies to a disposal group, i.e. a group of assets, and any directly associated liabilities, that will be disposed of in a single transaction through sale together as a group. The Board published ED 79 locally as ED 191.

When does an asset need to be classified as held for sale?

A non-current asset or disposal group (hereafter referred to as “asset”) whose carrying amount will be realised through a sale transaction rather than continuing use, is classified as held for sale. The asset must be available for immediate sale in its current condition, subject to usual terms that are customary for the sales of such assets. The sale should also be highly probable. For a sale to be highly probable:

• the appropriate level of management must be committed to the sale of the asset;
• an active programme must be in place to locate a buyer, and a selling plan must be initiated;
• the asset must be actively marketed at a price that is reasonable in relation to its current fair value; and
• the entity must expect to complete the sale within one year from the date the asset was classified as held for sale.

Which assets cannot be classified as held for sale?

The following assets cannot be classified as held for sale:

• Assets that are surplus to the entity’s operational requirements (surplus assets) – if no decision is taken to sell, transfer or scrap surplus assets, the criteria to be classified as held for sale will not be met. For example, after completing the construction of a new office building, the old building no longer used by the entity is surplus to its operational requirements. However, a decision has not been taken to sell the old building.
• Temporarily idle assets are only idle for a period, and the entity may generate future economic benefits or service potential through their future use. For example, office furniture is kept in storage until a new office building is constructed. As management still needs to decide if the office furniture will be used in the new building or whether it should be sold, there is no commitment to sell. Also, there is no active programme in place to locate a buyer and complete the sale. The entity should therefore continue to account for the furniture using the applicable IPSAS.
• Assets to be transferred to another entity instead – of being sold – as the carrying amount of these assets will principally not be recovered through a sales transaction, the criteria to be classified as held for sale are not met. The entity should continue to account for the asset using the applicable IPSAS.
• Abandoned assets include assets that are to be used until the end of their economic life and are likely to be closed, rather than sold. For example, an entity ceases to use a storage facility because of the location of the facility. The entity no longer maintains the facility, but the entity may decide to use or rent out the facility in future. As the carrying amount of the facility will principally be recovered through continuing use, the criteria to be classified as held for sale are not met.

Classification and measurement of an asset held for sale

Before an asset meets the criteria to be held for sale, it is measured using the relevant IPSAS, based on the reason  for having or holding the asset. For example,  suppose an asset is classified as property, plant and equipment and measured using the revaluation method. In that case, the entity continues to depreciate, impair and revalue the asset before being classified as held for sale.

Only when the held for sale criteria are met will the asset be presented separately from other assets in the statement of financial position. An asset held for sale is measured at the lower of its carrying amount and fair value less costs to sell.

If the held for sale criteria are no longer met, the entity ceases to classify the asset as held for sale. The asset is reclassified based on the reason or having or holding it and measured at the lower of:

• its carrying amount before it was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held for sale; or
• its recoverable amount as at the date of the subsequent decision not to sell.

How to provide comment on the ED

The Secretariat will host a roundtable discussion during September 2021 to give participants an opportunity to share their comments and views and provide any other feedback on the IPSASB’s proposals. This feedback will be used to formulate a comment letter to the IPSASB. If you are interested in attending this session, please contact amandab@asb.co.za

ED 79 is published on the ASB’s website and can be accessed here. The IPSASB’s webcast can be accessed by following this link.

Comment can be submitted to the Secretariat of the ASB at info@asb.co.za by 1 October 2021.

Disclaimer

The article has been prepared by the Secretariat of the ASB for information purposes only. It has not been reviewed, approved, or otherwise acted on by the Board.