Question

A non current asset is classified as held for sale. On the date of classification, immediately prior to the transfer to the 'held for sale' classification, the asset had: a cost of $100 000, accumulated depreciation of $40 000(10% per annum, straight line over 4 years); and accumulated impairment losses in terms of IAS 36 of $15 000. The asset was then impaired in terms of IFRS 5 by $10 000. Asume that the above asset had not yet been sold at the end of the following reporting date, at which point its fair value less cost to sell was $75 000. a) impairment loss reversal will be $15 000. b) impairment loss reversal will be $25 000. c) impaiment loss reversal will be $40 000. d) impairment loss reversal will be $10 000.

Answer 1

Measurement

The following principles apply:

• At the time of classification as held for sale. Immediately before the initial classification of the asset as held for sale, the carrying amount of the asset will be measured in accordance with applicable IFRSs. Resulting adjustments are also recognised in accordance with applicable IFRSs. [IFRS 5.18]
• After classification as held for sale. Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell (fair value less costs to distribute in the case of assets classified as held for distribution to owners). [IFRS 5.15-15A]

Impairment.Impairment must be considered both at the time of classification as held for sale and subsequently:

• At the time of classification as held for sale. Immediately prior to classifying an asset or disposal group as held for sale, impairment is measured and recognised in accordance with the applicable IFRSs (generally IAS 16 Property, Plant and Equipment, IAS 36 Impairment of Assets, IAS 38 Intangible Assets, and IAS 39 Financial Instruments: Recognition and Measurement/IFRS 9 Financial Instruments). Any impairment loss is recognised in profit or loss unless the asset had been measured at revalued amount under IAS 16 or IAS 38, in which case the impairment is treated as a revaluation decrease.
• After classification as held for sale. Calculate any impairment loss based on the difference between the adjusted carrying amounts of the asset/disposal group and fair value less costs to sell. Any impairment loss that arises by using the measurement principles in IFRS 5 must be recognised in profit or loss [IFRS 5.20], even for assets previously carried at revalued amounts. This is supported by IFRS 5 BC.47 and BC.48, which indicate the inconsistency with IAS 36.

Subsequent increases in fair value. A gain for any subsequent increase in fair value less costs to sell of an asset can be recognised in the profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognised in accordance with IFRS 5 or previously in accordance with IAS 36. [IFRS 5.21-22]