ACC 109: Intermediate Accounting 4

Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Lesson title: Non-current assets Held for Sale and Materials:

Discontinued Operations Columnar, notebook, non-scientific
Learning Targets: calculator, ballpen, pencil, Student Activity
At the end of the module, students will be able to: Sheets
1. Identify the requirements for classifying assets as
“held for sale.” References:
2. Explain the initial and subsequent measurement of Intermediate Accounting 2
“held for sale” assets. 2020 edition by Zeus Vernon B. Millan
3. Differentiate the following: (1) Noncurrent asset held
for sale, (2) Disposal group, and (3) Discontinued
operations.
4. Describe the presentation requirements of a
discontinued operation.

A. LESSON PREVIEW/REVIEW

Introduction

Hi, future accountant! Welcome back to learning Intermediate Accounting 4. The immediately preceding
module presented the PFRS 15 Revenue from Contracts with Customers where you enumerated the five steps
in the recognition of revenue, described how performance obligations are identified in a contract, described
how the transaction price is determined and how it is allocated to the performance obligations, explained the
timing of revenue recognition and its measurement, and described the presentation of contracts with
customers in the statement of financial position. As a continuation, this module introduces the accounting for
PFRS 5 Non-current assets Held for Sale and Discontinued Operations.

B. MAIN LESSON

Content and Skill-Building

Core Principle
A noncurrent asset is presented in the classified statement of financial position as current asset only when it
qualifies to be classified as “held for sale” in accordance with PFRS 5.

Scope
PFRS 5 applies to the following non-current assets:
1. Property, plant and equipment
2. Investment property measured under the Cost model
3. Investments in associate or subsidiary or joint venture
4. Intangible assets

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 ACC 109: Intermediate Accounting 4
Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Classification of Non-Current Assets (or disposal groups) as Held for Sale

A non-current asset (or disposal group) is classified as held for sale or held for distribution to owners if its carrying
amount will be recovered principally through a sale transaction rather than through continuing use.

Conditions for classification as held for sale

A non-current asset (or disposal group) is classified as “held for sale” if all of the following conditions are met:
1. The asset or disposal group is available for immediate sale in its present condition subject only to
terms that are usual and customary; and
2. The sale is highly probable (i.e., significantly more likely than not).
i. Management is committed to a plan to sell the asset;
ii. An active program to locate a buyer has been initiated;
iii. The sale price is reasonable in relation to its current fair value;
iv. The sale is expected to be completed within one year; and
v. It is unlikely that the plan of sale will be withdrawn.
Exception to the one-year requirement
An extension of the period required to complete a sale does not preclude an asset (or disposal group) from being
classified as held for sale if:
1. the delay is attributable to events or circumstances beyond the entity’s control; and
2. there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal
group)

Event after reporting period

If the criteria for classification as held for sale are met after the reporting period, an entity shall not classify a
non-current asset (or disposal group) as held for sale in those financial statements when issued.

Non-current assets that are to be abandoned

• An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned
since the asset’s carrying amount will be recovered through continuing use rather than principally through
a sale.
• An entity shall not account for a non-current asset that has been temporarily taken out of use as if it had
been abandoned.

Initial and Subsequent Measurement

• Lower of carrying amount and fair value less cost to sell.
• A write-down to fair value less cost to sell, and related reversal thereof, is recognized in profit or loss.
• Reversal of impairment is recognized as gain to the extent of cumulative impairment loss that has been
recognized.
• Depreciation (amortization) ceases during the period an asset is classified as held for sale.

Changes to a plan of sale

A non-current asset that ceases to be classified as held for sale shall be measured at the lower of the asset’s:

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 ACC 109: Intermediate Accounting 4
Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

1. Carrying amount before it was classified as held for sale, adjusted for any depreciation, amortization or
revaluation that would have been recognized had the asset not been classified as held for sale, and
2. Recoverable amount at the date of subsequent decision not to sell.

Discontinued Operations
A discontinued operation is a component of an entity that either has been disposed of or is classified as held
for sale, and
1. Represents a major line of business or geographical area of operations;
2. Is part of a single coordinated plan to dispose of a separate major line of business or geographical area
of operations; or
3. Is a subsidiary acquired exclusively with a view to resale

Component of an Entity
A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally
and for financial reporting purposes, from the rest of the entity. It can be cash generating unit or group of cash
generating units.

Classification Asset(s) being sold Presentation

Non-current Asset Held for A single non-current asset (e.g.
Statement of Financial Position
Sale Equipment)
A group of assets (e.g.
equipment and inventories and
Disposal Group held for Sale Statement of Financial Position
payables directly related to the
equipment and inventories)
Statement of Financial Position
A component of an entity (e.g. a and Statement of Profit or Loss
Discontinued Operations
branch) and Other Comprehensive
Income

Presentation of Discontinued Operations

• The results of operations of the discontinued operations, including impairment losses and actual gain on
disposal, is presented as a single amount, net of tax, after profit or loss from continuing operations.
• If a component of an entity qualified as discontinued operation during the year, all of its results of
operations, before and after classification date, shall be classified as discontinued operations.

Direct Costs associated to decision to dispose a component

Costs or adjustments directly associated with the decision to dispose a component should be recognized and
shown as part of discontinued operations. Examples of such costs include:
1. such items as severance pay or employee termination costs,
2. additional pension costs,
3. employee relocation expenses, and

This document is the property of PHINMA EDUCATION

 ACC 109: Intermediate Accounting 4
Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

4. future rentals on long-term leases

Comparative Information
If, in the current year, a component of an entity is classified as discontinued operation, an entity shall re-present
the disclosures for prior periods presented in the financial statements so that the disclosures relate to all
operations that have been discontinued by the reporting period for the latest period presented.
Events after the Reporting Period
If the criteria for classification as discontinued operation are met after the reporting period but before the financial
statements are authorized for issue, the entity shall disclose the information in the notes as non-adjusting
event after the reporting period.
Cessation of Classification as Held for Sale: Effect on Comparative Statement of Financial Position
• The cessation of classification as discontinued operation is accounted for retrospectively; while
• The cessation of classification as held for sale (non-current assets and disposal groups that are not
components of an entity) is accounted for prospectively.

FS Presentation
• Non-current assets held for sale and assets and liabilities of disposal groups are presented as current
assets (current liabilities) but separately from the other assets and liabilities in the statement of financial
position.
• An entity shall not offset the assets and liabilities of a disposal group.

Skill Building Activity

__________1. If a noncurrent asset is sold after the end of the reporting period but before the financial
statements are authorized for issue, that asset is classified as current asset in the statement of financial
position.
__________2. PFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies only to
noncurrent assets. Current assets are outside the scope of this standard.
__________3. According to PFRS 5, a non-current asset (or disposal group) is classified as held for sale if its
carrying amount will be recovered principally through continuing use rather than through a sale transaction.
__________4. For purposes of applying the provisions of PFRS 5, an exchange transaction with commercial
substance may be treated as a sale.
__________5. Noncurrent assets classified as held for sale in accordance with PFRS 5 are measured at fair
value less costs to sell.
__________6. The assets and liabilities of a disposal group shall be offset and the net amount is presented as
either asset or liability.
__________7. Investment properties measured under the fair value model are within the scope of PFRS 5.
__________8. Property, plant and equipment measured under the revaluation model are within the scope of
PFRS 5.
__________9. “Highly probable” means more likely than not.
__________10. Meeting the criteria for held for sale classification after the balance sheet date but before the
financial statements are authorized for issue is a non-adjusting event after the reporting period.

This document is the property of PHINMA EDUCATION

 ACC 109: Intermediate Accounting 4
Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Check for Understanding

The statements of financial position and profit or loss of an entity on December 31, 20x1 shows the following
information:
Cash and cash equivalents 1,800,000
Trade and other receivables 3,600,000
Inventories 10,800,000
Investment property (Cost model) 4,200,000
Investment in associate 2,400,000
Property, plant and equipment 15,000,000
Total assets 37,800,000

Trade and other payables 14,700,000

14,700,000
Current tax payable 5,400,000
Deferred tax liability 2,100,000
Ordinary share capital 6,000,000
Retained earnings - Dec. 31, 20x1 8,100,000
Other components of equity 1,500,000
Total liabilities & equity 37,800,000

Revenue 6,720,000
Cost of sales (2,400,000)
Gross profit 4,320,000
Distribution costs (936,000)
Administrative expenses (1,080,000)
Finance costs (360,000)
Share of profit of associates 288,000
Profit for the year 2,232,000

On December 31, 20x1, the entity commits to a plan to sell a component of an entity that represents a major
geographical area of operations. All the conditions of PFRS 5 are met. Information on the component is as
follows:

Financial position:
Accounts receivable 240,000
Inventory 672,000
Equipment 3,360,000
Accounts payable 432,000
Financial performance:

This document is the property of PHINMA EDUCATION

 ACC 109: Intermediate Accounting 4
Modules #18 & 19 Student Activity Sheet

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________________ Date: ________________

Revenue 2,000,000
Cost of sales 1,200,000
Distribution costs 280,000
Administrative expenses 432,000

Additional information:
• The entity determines that the equipment has a fair value less costs to sell of P1,600,000. The carrying
amounts of the other assets and the liability approximate their fair value less costs to sell.

Requirement: Prepare the December 31, 20x1 classified statement of financial position and the statement of
profit or loss of the entity. Ignore the effects of income taxes.

C. LESSON WRAP-UP

Thinking about Learning

What are your challenges in learning the concepts in this module? If you do not have challenges, what is your
best learning for today?
________________________________________________________________________________________
________________________________________________________________________________________

What are the questions/thoughts you want to share to your teacher today?
________________________________________________________________________________________
________________________________________________________________________________________

Answer Key
Skill-Building
1. FALSE 6. FALSE
2. TRUE 7. FALSE
3. FALSE 8. TRUE
4. TRUE 9. FALSE
5. FALSE 10. TRUE

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