01 January 2017

The challenge of implementing IFRS 5

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. IFRS 5 Non–Current Assets Held for Sale and Discontinued Operations requires an entity to classify non-current assets as held for sale when the carrying amount will be recovered principally through a sale transaction rather than through continuing use. Which of the following conditions do not have to be met in order for the sale transaction to be dealt with under IFRS 5?

  2. When assets are classified as held for sale, the entity has to measure the assets in a manner set out in IFRS 5. Which of the following measurement methods is required for an asset deemed to be held for sale?

  3. One issue relating to IFRS 5 is whether loss of control other than through outright sale, can result in a held-for-sale classification. For example, an entity could lose control through dilution of the shares held by the entity or due to call options held by a non-controlling shareholder. What conclusion was reached as to whether loss of control is a factor which brings the event within the scope of IFRS 5?

  4. An issue with IFRS 5 relates to whether an impairment loss recognised for a disposal group should be allocated to non-current assets in the group to the extent that it reduces the carrying amount of such assets to below their fair value less costs to sell. The Interpretations Committee have discussed this issue and have tentatively reached a conclusion. Which of the following treatments was not discussed by the Interpretations Committee?

  5. The interpretation of the definition of discontinued operation, has come under scrutiny recently. Which of the following is not a condition which affects the classification of a discontinued operation?

  6. There are different practices as regards how transactions between continuing and discontinued operations are treated. How does IFRS 5 deal with this issue?

  7. In 2013, IFRS 5 was amended to clarify the situation where a disposal group or non-current asset ceases to be classified as held for sale and is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. (Subsidiary et al.) What is the accounting treatment set out in IFRS 5 for the above event?

  8. In 2013, IFRS 5 was amended to clarify the situation where a disposal group or non-current asset ceases to be classified as held for sale and is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. (Subsidiary et al.) What is the accounting treatment set out in IFRS 5 for a non-current asset (or a disposal group), that is not a subsidiary et al, ceasing to be classified as held for sale?

  9. An issue arises in a situation in which an impairment loss recorded for a disposal group that is classified as held for sale subsequently reverses. IFRS 5 requires the recognition of a gain for a subsequent increase in fair value less costs to sell of a disposal group. However, specifically, the question focuses on whether an impairment loss relating to goodwill can be reversed. What was the conclusion of the Interpretations Committee as regards the reversal of an impairment loss relating to goodwill?

  10. A question arises as to whether IFRS 5 applies to a disposal group that consists mainly, or entirely, of financial instruments. IFRS 5 states that financial assets are excluded from its scope for measurement purposes. What is the accounting issue in a situation where it is expected that such a disposal group will be sold at a loss?

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