Financial Reporting Insights-IFRS 5

Financial Reporting Insights-IFRS 5

For the Attention of;

BCOM, BBA, CPA AND ACCA Students And Any Other Accounting Practitioners.

IFRS 5 – Non-Current Assets Held For Sale And Discontinued Operations.

IFRS 5 was issued in March 2004

The objective of IFRS 5 is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations in financial statements.

For an Asset to be classified as held for sale, the below acronym will help you classify it correctly onto the financial statements.

PAMASU

P – Probable that future economic benefits will flow to the entity

A -Active Market (there must be an active market)

M -Management is committed to the Sale within 12 months

A Actively sourcing for a Buyer

S -Saleable in present state

U –Unlikely that Management will change decision to sale

When an asset meets the above criteria, it is classified as held for sale in the Financial Statements at;

The Lower of;

FV less costs to sale and;

Carrying amount of the Asset

FV=Fair Value

Hence the asset is included as a single line item in the statement of financial position (Balance Sheet) and not depreciated.

Discontinued operations is a seperate major line of business or geographical area that is either closed/ sold or held for sale.

This (discontinued operations) is presented as a seperate line item in Profit or Loss A/C.

Any gains or loss on disposal will be disclosed in more detail in the notes to the accounts; so that share holders and other users can look at it and ask why you sold or what price did you get and any other questions-all the results will be in one line in P/L & no seperation of revenue or cost of sales relating to the same.

Then reinstate the prior year accounts to enable users consider discontinued operations for the previous year and understand the results from both years (2) in addition to the gain on disposal.

IFRS 5 is there to give users a more fore understanding of the true picture of the business so that poor performing sectors will not distort the results of other operations.

Please look out for the next post by shamirah Naava.

Also read: https://www.campustimesug.com/?s=accounting

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