Definition of Held-for-Sale
Held-for-sale is a classification used for non-current assets (or disposal groups) in accordance with International Accounting Standard (IAS) 5, Non-current Assets Held for Sale and Discontinued Operations. For an asset or group of assets to be classified as held-for-sale, it must be available for immediate sale in its present condition subject only to usual and customary terms, and the sale must be highly probable to be completed within one year from the date of classification.
Assets classified as held-for-sale are valued at the lower of their carrying amount and fair value less costs to sell, which is also known as their net realizable value. Importantly, these assets must be disclosed separately from other assets on the balance sheet, allowing for greater transparency and aiding in financial analysis.
Examples
- Real Estate: A company decides to sell an office building that is no longer in use. The building is immediately available for sale and the company expects to finalize the sale within 12 months.
- Machinery: A manufacturing firm plans to dispose of outdated machinery. The company classifies the machinery as held-for-sale, as it is ready for immediate sale and expects the transaction to close within the one-year timeframe.
Frequently Asked Questions (FAQs)
What conditions must be met for an asset to be classified as held-for-sale?
To classify an asset as held-for-sale, it must be available for immediate sale in its present condition and the sale must be highly probable to be completed within one year from the date of classification.
How should held-for-sale assets be valued on the balance sheet?
Held-for-sale assets should be valued at the lower of their carrying amount and fair value less costs to sell, also known as the net realizable value.
What happens if the sale of a held-for-sale asset is not completed within one year?
If the sale is not completed within one year, the asset should be reassessed. If the criteria for held-for-sale classification are no longer met, the asset should be reclassified and measured in accordance with normal accounting standards.
Do held-for-sale assets impact the income statement?
Indirectly, yes. Adjustments to fair value less costs to sell, and any impairment losses for held-for-sale assets, will affect the income statement as they represent changes in asset valuation.
What should be included in the disclosures for held-for-sale assets?
Disclosures should include a description of the non-current assets or disposal group, the facts and circumstances of the sale, the carrying amount, fair value less costs to sell, and any impairment losses recognized.
Related Terms
- Carrying Amount: The amount at which an asset is recognized in the balance sheet after deducting any accumulated depreciation and accumulated impairment losses.
- Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Net Realizable Value: The estimated selling price in the ordinary course of business minus the estimated costs of completion and the estimated costs necessary to make the sale.
- Discontinued Operations: Components of an entity that have been disposed of or classified as held for sale and represent a separate major line of business or geographical area of operations.
Online Resources
- IFRS - IAS 5 Non-Current Assets Held for Sale and Discontinued Operations
- PWC - Accounting for Assets Held For Sale
- Deloitte IFRS 5: Non-current Assets Held for Sale
Suggested Books for Further Studies
- “International Financial Reporting Standards (IFRS) 2020” by the International Accounting Standards Board (IASB)
- “Financial Accounting and Reporting” by Barry Elliott, Jamie Elliott
- “Applying IFRS Standards” by Ruth Picker, Kerry Clark, John Dunn, David Kolitz, Gilad Livne, Janice Loftus, Carol Rankin
Accounting Basics: “Held-for-Sale” Fundamentals Quiz
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