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

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations is the accounting standard that governs how a business accounts for assets it intends to sell rather than continue using, and how it presents operations it is shutting down or disposing of. This practical guide explains what IFRS 5 covers, the "held for sale" criteria, how such assets are measured and presented, what counts as a discontinued operation, and why it matters — in plain language. It's a core financial-reporting topic, relevant to ACCA study.

What is IFRS 5?

IFRS 5 deals with two related situations: non-current assets (or disposal groups) held for sale, and discontinued operations. The underlying idea is that when an asset's value will be recovered principally through sale rather than through continuing use, and when a major part of the business is being wound down or sold, this changes how those items should be measured and presented — so that users of the accounts can clearly see what is continuing and what is not.

The "held for sale" criteria

A non-current asset (or group of assets) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continuing use. For this, the asset must be available for immediate sale in its present condition, and the sale must be highly probable. "Highly probable" requires that:

• Management is committed to a plan to sell the asset.
• An active programme to locate a buyer has begun.
• The asset is marketed at a reasonable price relative to its fair value.
• The sale is expected to be completed within one year of classification (with limited exceptions).

How held-for-sale assets are measured and presented

Once classified as held for sale, an asset is measured at the lower of its carrying amount and its fair value less costs to sell. A key consequence is that the asset is no longer depreciated (or amortised) — because it is no longer being consumed through use, but is awaiting sale. On the balance sheet, held-for-sale assets are presented separately from other assets, so users can see them distinctly. This separate presentation, and the cessation of depreciation, are among the most-tested points of the standard.

What is a discontinued operation?

A discontinued operation is a component of an entity that has either been disposed of, or is classified as held for sale, and which:

• represents a separate major line of business or geographical area of operations;
• is part of a single coordinated plan to dispose of such; or
• is a subsidiary acquired exclusively with a view to resale.

The point is that a discontinued operation is a significant part of the business being exited — not just the sale of an individual asset.

How discontinued operations are presented

To help users distinguish continuing from discontinuing activities, the results of a discontinued operation are presented as a single amount on the face of the statement of profit or loss — comprising the post-tax profit or loss of the discontinued operation, plus any post-tax gain or loss on its measurement to fair value less costs to sell, or on its disposal. This separation lets users assess the performance of the operations that will continue into the future, which is what matters most for forecasting.

Why IFRS 5 matters

IFRS 5 matters because it gives users a clear view of which parts of a business are continuing and which are being sold or closed — vital information for assessing future performance. By changing how held-for-sale assets are measured (and stopping their depreciation), and by separating out discontinued operations, the standard ensures the financial statements reflect the reality of a business in transition. For accountants, the held-for-sale criteria and the presentation rules are key, regularly-examined points.

Frequently asked questions

What is IFRS 5?

The international standard on Non-current Assets Held for Sale and Discontinued Operations — governing assets to be recovered through sale rather than use, and the presentation of operations being disposed of.

When is an asset "held for sale"?

When its value will be recovered principally through sale, it is available for immediate sale, and the sale is highly probable — management committed, actively marketed at a reasonable price, and expected within one year.

How are held-for-sale assets measured?

At the lower of carrying amount and fair value less costs to sell. They are no longer depreciated, and are presented separately on the balance sheet.

What is a discontinued operation?

A component representing a separate major line of business or geographical area that has been disposed of or is held for sale — presented as a single post-tax amount on the face of profit or loss.

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