Disposal of Long-Lived Assets and Discontinued Operations

ASPE: 3475

Disposal of Long-Lived Assets and Discontinued Operations

ASPE: 3475

Scope

This section does not apply to the following assets:

  • the disposal of goodwill
  • investments, including equity method accounted investments
  • financial assets, financial liabilities
Definition
  • A disposal group is a group of assets to be disposed together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction
  • This section also applies to disposal groups in addition to individual assets
Long-lived assets to be disposed of other than by sale
  • A long-lived asset to be disposed of other than by sale shall continue to be classified as held and used until it is disposed of
  • This includes assets that are to be abandoned
Long-lived assets to be disposed of by sale

A long-lived asset to be sold shall be classified as held for sale in the period in which all of the following criteria are met:

  1. management commits to a plan to sell;
  2. it is available for immediate sale in its present condition
  3. an active program to locate a buyer and other actions required to complete the sale plan have been initiated;
  4. the sale is probable and is expected to be sold within one year
  5. it is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
  6. actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Measurement
  • A long-lived asset classified as held for sale shall be measured at the lower of its:
    • carrying amount; or
    • fair value less cost to sell.
  • Amortization is not taken while an asset is classified as held for sale
  • A loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell
  • A gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized for a write-down to fair value less cost to sell required by this Section
Changes to a plan of sale
  • If a long-lived asset no longer meets the criteria to be classified as held for sale, it shall be measured individually at the lower of:
    1. carrying amount before it was classified as held for sale, adjusted for any amortization that would have been recognized had it been continuously classified as held and used; or
    2. fair value at the date of the subsequent decision not to sell
Presentation
Balance sheet presentation
  • A long-lived asset classified as held for sale is presented separately in the balance sheet
  • Long-lived assets classified as held for sale are not reclassified as current assets, unless
    • the enterprise has sold the assets prior to the date of completion of the financial statements; and
    • the proceeds of the sale will be realized within a year of the date of the balance sheet, or within the normal operating cycle if that is longer than a year.
Discontinued operations
  • The results of operations of a component of an enterprise that either
    • has been disposed of (by sale, abandonment or spin-off); or
    • is classified as held for sale is reported in discontinued operations if both of the following conditions are met:
      1. the operations and cash flows of the component have been (or will be) eliminated as a result of the disposal transaction; and
      2. the enterprise will not have any significant continuing involvement in the operations of the component after the disposal transaction
  • A component of an enterprise includes operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the enterprise
  • Examples of components include:
    • operating segment
    • a reporting
    • a subsidiary
    • an asset group
    • operations without long-lived or other assets.
  • An operating segment is a component of an enterprise:
    • that earns revenues and incur expenses
    • for which operating results are regularly reviewed
    • for which separate information is available
Comparison to IFRS
  • This topic is covered under IFRS 5
  • IFRS covers assets held for distribution to owners
  • Under IFRS, you are allowed to write up the asset if the fair value less cost to sell subsequently increases; the reversal is limited to losses taken under IFRS 5 and any previous impairment losses taken when the asset was classified as held for use
  • When the asset no longer qualifies as held for sale, under IFRS, asset is re-measured at the lower of “carrying value had the asset not been classified as held for sale” and the “recoverable amount” (rather than fair value)
  • Under ASPE, “non-current assets held for sale” are shown as current assets if the assets are sold before the completion of the F/S; IFRS makes no mention of this – however, if a similar situation occurs, we would likely show “non-current assets held for sale” as current assets
  • Under ASPE the criteria for classifying the loss due to re-measuring an asset held for sale under discontinued operations is different

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