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

This article walks through the key considerations for non-current assets held for sale and discontinued operations under IFRS 5. Getting this right matters for statutory compliance, which is why it’s worth working with trusted Audit Firms in Dubai that offer tailored support implementing IFRS 5 correctly.

What Are the Objectives of IFRS 5?

IFRS 5 covers two main areas:

1. Accounting treatment for assets, or disposal groups, held for sale.
2. Presentation and disclosure requirements for discontinued operations.

IFRS 5 applies to all non-current assets, there’s no general carve-out from its presentation and disclosure requirements. That said, the standard does set out specific measurement exceptions, certain asset types keep being measured under their own standard even once classified as held for sale, rather than switching to IFRS 5’s measurement basis.

Two Essential Concepts

1. Non-Current Assets Held for Sale

This covers assets classified as held for sale. IFRS 5 sets specific criteria for when an asset qualifies for this classification, generally requiring:

• Management is committed to a plan to sell the asset
• The asset is available for immediate sale in its present condition
• The sale is highly probable within a specified timeframe

Getting the classification and disclosure treatment right for these assets is fundamental to accurate financial reporting.

2. Discontinued Operations

IFRS 5 also sets presentation and disclosure requirements for discontinued operations, components of an entity that have either been disposed of or classified as held for sale. A component qualifies as a discontinued operation where it represents a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale. The standard sets specific criteria for this classification and requires the results of discontinued operations to be reported distinctly from continuing operations.

Read More: IFRS: What It Is, Benefits, Importance and Scope

When to Classify an Asset as Held for Sale

A company should classify a non-current asset as held for sale when its carrying amount will be recovered primarily through a sale transaction rather than through continued use in the business.

IFRS 5 also introduces the concept of a disposal group, a set of assets and directly associated liabilities intended to be disposed of together in a single transaction.

For example, where a business runs a small number of divisions and decides to sell one of them, all of that division’s assets, property, plant and equipment, inventory, deferred tax assets, and so on, along with all of its associated liabilities, together make up the disposal group.

When Is a Sale Considered Highly Probable?

The asset needs to be available for immediate sale in its current condition, and the sale itself needs to be highly probable, not just possible. IFRS 5 sets specific criteria for what makes a sale highly probable:

• Management is committed to a plan to sell the asset.
• An active program to locate a buyer has already begun.
• The asset is being actively marketed for sale at a price reasonable relative to its current fair value.
• The sale is expected to complete within one year of the date of classification.
• Significant changes to the plan, or its withdrawal, are unlikely.

The same broad criteria also apply to assets held for distribution to owners.

Also check: Financial Statement Audit Services in Dubai

How Held-for-Sale Assets Are Measured

This is the core measurement rule of IFRS 5, and it’s easy to overlook: once an asset or disposal group is classified as held for sale, it’s measured at the lower of its carrying amount and fair value less costs to sell. If fair value less costs to sell is below the carrying amount, the asset is written down and the loss recognized immediately.

Just as importantly, a non-current asset stops being depreciated or amortized from the point it’s classified as held for sale, even if the sale ultimately takes longer than expected. Continuing to depreciate an asset after it’s been classified as held for sale is one of the more common compliance errors auditors catch.

Presenting Discontinued Operations

IFRS 5 requires the results of a discontinued operation to be presented as a single line item in the statement of profit or loss, shown net of tax, rather than mixed into the entity’s normal continuing operating results. That single line typically combines the post-tax profit or loss of the discontinued operation for the period with the post-tax gain or loss recognized on remeasuring it to fair value less costs to sell, or on its actual disposal.

Measurement Exceptions

A handful of asset types keep being measured under their own standard even after being classified as held for sale, rather than switching to the lower-of-carrying-amount-or-fair-value-less-costs-to-sell basis:

• Deferred tax assets (IAS 12 Income Taxes)
• Assets arising from employee benefits (IAS 19 Employee Benefits)
• Financial assets within the scope of IFRS 9 Financial Instruments
• Non-current assets accounted for under the fair value model in IAS 40 Investment Property
• Non-current assets measured at fair value less costs to sell under IAS 41 Agriculture
• Contractual rights under insurance contracts within the scope of IFRS 17 Insurance Contracts

Where an asset falls into one of these categories, it continues to be measured under its own standard, for example, a financial instrument held for sale stays measured under IFRS 9, not IFRS 5, even after classification.

Related: External Audit Services in Dubai

Classification Checklist

Criterion	What It Requires
Management commitment	A committed plan to sell, not just an intention under consideration
Immediate availability	Sellable in its current condition, no material further preparation needed
Active marketing	Genuinely being marketed at a price reasonable to current fair value
Probable timeframe	Sale expected to complete within one year of classification
Plan stability	Unlikely that the plan will change significantly or be withdrawn

Worked Example

A Dubai manufacturing group decides to sell one of its factories. The factory’s carrying amount is AED 12 million. Management commits to the sale, actively markets the property at a price consistent with its fair value, and expects the sale to close within eight months. At classification, an independent valuation puts fair value less costs to sell at AED 10.5 million. Because this is below the carrying amount, the group recognizes an immediate impairment loss of AED 1.5 million and reclassifies the factory as held for sale at AED 10.5 million. From this point forward, the factory is no longer depreciated, even though the sale hasn’t yet completed.

Common Mistakes in Applying IFRS 5

• Continuing to depreciate an asset after classification. This is one of the most frequent errors, depreciation stops the moment held-for-sale classification applies.
• Measuring at fair value alone, ignoring costs to sell. The correct benchmark is fair value less costs to sell, not fair value on its own.
• Applying IFRS 5 measurement to exempt asset categories. Financial instruments, deferred tax assets, and a handful of others stay under their own standard even after classification.
• Burying discontinued operations results within continuing operations. IFRS 5 requires a distinct, single, post-tax line item, not disclosure scattered across the income statement.

Frequently Asked Questions

How is a held-for-sale asset measured under IFRS 5?

At the lower of its carrying amount and fair value less costs to sell, with any resulting write-down recognized immediately.

Does depreciation continue after an asset is classified as held for sale?

No. Depreciation and amortization stop from the date of classification, regardless of how long the actual sale takes.

What qualifies a component as a discontinued operation?

It must represent a separate major line of business or geographical area of operations, or be a subsidiary acquired exclusively with a view to resale, and must have been disposed of or classified as held for sale.

How should discontinued operations be presented in the income statement?

As a single line item, net of tax, combining the discontinued operation’s post-tax profit or loss with any post-tax gain or loss on remeasurement or disposal.

Are all non-current assets measured the same way once classified as held for sale?

No. A handful of specific categories, including deferred tax assets, IFRS 9 financial assets, and certain fair-value-measured investment property and biological assets, keep being measured under their own standard rather than IFRS 5.

Getting IFRS 5 Classification and Measurement Right

The two errors that show up most often in practice are opposite ends of the same problem: classifying an asset as held for sale too early, before management commitment and active marketing genuinely exist, or forgetting to stop depreciation once the classification is correctly made.

Audit Firms in Dubai can review your disposal group classifications and confirm both the measurement and presentation hold up against IFRS 5 before your next reporting cycle.