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The Interpretations Committee tentatively decided not to take the IFRS 5-related issues to its agenda

 05 September 2015


IFRS 5 Non-current Assets Held for Sale and Discontinued Operations—To what extent can an impairment loss be allocated to non-current assets within a disposal group? (Agenda Paper 2B)

The Interpretations Committee received a request to clarify a measurement requirement of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Specifically, the question is whether, in a situation in which the carrying amount of those assets exceeds the amount of the impairment loss, the allocation of an impairment loss recognised for a disposal group can reduce the carrying amount of non-current assets that are within the measurement requirements of IFRS 5 to an amount that is lower than their fair value less costs of disposal or their value in use,. In analysing this issue, the Interpretations Committee did not consider the implications for allocation of an impairment loss if that loss exceeds the carrying value of the non-current assets that are within the measurement requirements of IFRS 5.

The Interpretations Committee noted that paragraph 23 of IFRS 5 addresses the recognition of impairment losses for a disposal group. It also noted that in determining the order of allocation of impairment losses to non-current assets, paragraph 23 refers to paragraphs 104 and 122 of IAS 36 Impairment of Assets, which relate to the order of allocation of impairment losses. However, it does not refer to paragraph 105 of IAS 36, which restricts the impairment losses allocated to individual assets by requiring that an asset is not written down to less than the higher of its fair value less costs of disposal, its value in use and zero. Consequently, the Interpretations Committee observed that the restriction in paragraph 105 of IAS 36 does not apply when allocating an impairment loss for a disposal group to the non-current assets that are within the scope of the measurement requirements of IFRS 5. The Interpretations Committee understood this to mean that the amount of impairment that should be recognised for a disposal group would not be restricted by the fair value less costs of disposal or value in use of those non-current assets that are within the measurement requirements of IFRS 5.

On the basis of this analysis, the Interpretations Committee concluded that, in the light of the existing requirements of IFRS 5, sufficient guidance exists and that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee [decided] not to add this issue to its agenda.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations—How to present intragroup transactions between continuing and discontinued operation (Agenda Paper 2C)


The Interpretations Committee received a request to clarify how to present intragroup transactions between continuing and discontinued operations.

The submitter points out that paragraph 30 of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires an entity to present and disclose information that enables users of the financial statements to evaluate the financial effects of discontinued operations and disposals of non-current assets (or disposal groups). However, IFRS 5 does not provide specific guidance on how to eliminate intragroup transactions between continuing and discontinued operations.

The Interpretations Committee noted that there are no requirements or guidance in IFRS 5 or IAS 1 Presentation of Financial Statements in relation to the presentation of discontinued operations that override the consolidation requirements in IFRS 10 Consolidated Financial Statements. The Interpretations Committee also noted that paragraph B86(c) of IFRS 10 requires eliminations of, among other things, income and expenses relating to intragroup transactions, and not merely intragroup profit. The Interpretations Committee understood this to mean that an entity needs to eliminate intragroup sales against the internal selling party and intragroup purchases against the internal purchasing party.

Paragraph 30 of IFRS 5 requires an entity to present and disclose information that enables users of the financial statements to evaluate the financial effects of discontinued operations and disposal activity. In the light of this objective, the Interpretations Committee observed that, depending on an entity’s facts and circumstances, it may have to provide additional disclosures in the notes to the financial statements, in order to enable users to evaluate the financial effects of discontinued operations.

Although the Interpretations Committee observed some diversity in practice, it concluded on the basis of this analysis that, in the light of the existing requirements of IFRS 5, sufficient guidance exists and that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee [decided] not to add this issue to its agenda.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations—Various IFRS 5-related issues (Agenda Paper 2D)

The Interpretations Committee has received and discussed a number of issues relating to the application of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requirements over a number of its meetings. Those issues relate to various aspects of the IFRS 5 requirements and include the following:

Scope

  1. the scope of the held-for-sale classification—paragraph 6 of IFRS 5 requires a non-current asset (or disposal group) to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. The issue relates to whether certain types of planned loss of control events, besides loss of control through sale or distribution, can result in a held-for-sale classification, such as loss of control of a subsidiary due to dilution of the shares held by the entity, call options held by a non-controlling shareholder or a modification of a shareholders’ agreement. Should planned loss of control events in any of these circumstances fall within the scope of IFRS 5?
  2.  accounting for a disposal group consisting mainly of financial instruments—paragraph 5 of IFRS 5 exempts from the measurement requirements of IFRS 5, among other things, financial assets within the scope of IFRS 9 Financial Instruments. The issue relates to whether IFRS 5 applies to a disposal group that consists mainly, or entirely, of financial instruments. Should such a disposal group be within the scope of IFRS 5 in terms of the classification and/or measurement requirements of IFRS 5?

Measurement

  1. impairment of a disposal group—paragraph 15 of IFRS 5 requires a disposal group to be measured at the lower of its carrying amount and its fair value less costs to sell, whereas paragraph 23 requires the impairment loss recognised for a disposal group to be allocated to the carrying amount of the non-current assets that are within the scope of the measurement requirements of IFRS 5. The issue relates to a situation in which the difference between the carrying amount and the fair value less costs to sell of a disposal group exceeds the carrying amount of non-current assets in the disposal group. Should the amount of impairment losses be limited to the carrying amount of:
  2. reversal of an impairment loss relating to goodwill in a disposal group—paragraph 22 of IFRS 5 requires the recognition of a gain for a subsequent increase in fair value less costs to sell of a disposal group. The issue relates to a situation in which goodwill that is included in the disposal group has previously been impaired. Specifically, the question focuses on whether an impairment loss previously allocated to goodwill can be reversed. Should the allocation of all or part of a previous impairment loss to goodwill limit the amount of impairment reversal that can be recognised against other assets in the disposal group?

Presentation

  1. how to apply the definition of ‘major line of business’ in presenting discontinued operations—in accordance with paragraph 32 of IFRS 5, if a component of an entity has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations, it is a discontinued operation. The issue is how to interpret the definition of 'discontinued operation', especially with regard to the notion of ‘separate major line of business or geographical area of operations’ as described in paragraph 32 of IFRS 5.
  2. how to apply the presentation requirements in paragraph 28 of IFRS 5—paragraph 28 requires the effects of a remeasurement (upon ceasing to be classified as held for sale) of a disposal group that is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate, to be recognised retrospectively, whereas it requires the effects of such a remeasurement of non-current assets to be recognised in the current period. The issue relates to a situation in which there has been a change to a plan to dispose of a disposal group that consists of both a subsidiary and other non-current assets, and that such a change results in the disposal group no longer being classified as held for sale. In such a situation, should the remeasurement adjustments relating to the subsidiary and the other non-current assets be recognised in different accounting periods, and should any retrospective amendment apply to presentation as well as to measurement?

The Interpretations Committee noted that the IASB has recently published a Request for Views 2015 Agenda Consultation to gather views on the strategic direction and the balance of the work plan of the IASB, and that IFRS 5 was described as a possible research project in that document. The Interpretations Committee concluded that it was better to wait until the 2015 Agenda Consultation is completed before further discussing any of these issues.

Consequently, the Interpretations Committee [decided] not to add these issues to its agenda.



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