Discontinuing

operations

Impairment of Non-Financial
Asset
Carrying
amount
Lower

Recovera
ble
amount

Fair value less

costs to sell
Higher
Value in use

Non-current asset held for sale

(PFRS 5)
Non-current asset whose recoverable amount will
be principally recovered through sale rather than
continuing
use.
Carrying
amount

Fair value less

costs to sell

Lower

Recovera
ble
amount

IGNORE
Value in use

Definition
Represents a separate major line of business or
geographical area of operations
Is a part of a single-coordinated plan to dispose of a separate major line
of business or geographical operations

Is a subsidiary acquired exclusively with a view to resale

Conditions to be classified as
held for sale
Available for immediate sale in its present
condition

The sale must be highly probable

What is highly probable?

Commitmen
t from the
managemen
t
Active
program to
locate a
buyer

Actions required
to complete the
plan are more
likely to happen.

Sale is
intended to
be completed
within one
year
The selling
price must be
reasonable

Initial Measurement of NCA

HFS
Carrying Amount

No accounting
Lower
problem

Lower
amount

Fair Value
Recoverable
less costs to
Amount
sell

Impairment loss xx
Asset
xx
Impairment
Lower
Loss

Subsequent Measurement
Carrying Amount

Lower

GAIN

Lower

IMPAIRMENT LOSS

Lower
amount

FV Less CTS

Charge against the Impairment Loss

Asset
xx
Impairment Loss

xx

Establish a revaluation surplus

Asset
xx
Revaluation Surplus

xx

Presentation
Current
Asset

No more
depreciation
No retroactive
presentation

Assets and
Liabs are
presented
separately.

Income Statement Presentation

Post-tax profit or loss on the
discontinued operation and the post-tax
gain or loss on the disposal of the assets
or disposal group constituting the
discontinued operation.

Balance Sheet Presentation

Separate presentation of the following:
Assets that are held for sale separate from other
assets
Assets measured at the lower of CA and FV less
CTS.
Liabilities that are held for sale separate from
the other liabilities.
Non-depreciation of the NCA-HFS.

Sample Problems
On October 1,2015, when the carrying amount of the net
assets of a business segment was 50M. Yomi signed a
legally binding contract to sell the business segment. The
sale is expected to be completed by March 31,2016 at a
selling price of 45M. In addition, prior to March 31,2016,
the sale contract obliges Yomi to terminate the employment
of certain employees of the business segment incurring an
expected termination costs of 3M to be paid on June 30,
2016. The segments revenues and operating expenses for
2015 respectively were 30M and 38M. Before income tax,
how much will be reported as loss from discontinued

CA lower amount= Impairment

On October 1,2015, when the carrying amount
of the
Loss
CARRYING
42M
= 8M
net assets
of a business segment was50M
50M.
Yomi
AMOUNT
Impairment
= 8M
signed a legally binding contract to
sell the Loss
business
FAIR
segment.
The=sale
is VALUE
expected to be completed by
Lower
Amount
42M

March 31,2016 at a selling price of 45M. In addition,

prior to March 31,2016,
the sale
Revenues
contract obliges
COSTS
TO SELL
Yomi
to terminate
theExpenses
employment
of certain
=
REVENUES an
Gain/Loss
employees of the business
segment incurring
30Mcosts
38Mof
= 3M
8M to be paid on June
EXPENSES
expected
termination
Loss revenues
= 8M
30, 2016. The segments
and operating
expenses
for 2015
were 30M and 38M.
Total
Loss respectively
from Discontinued
Before incomeOperations
tax, how much
will be reported as
= 16M
loss from discontinued operations?

In 2015, Ram Industries decided to discontinue its

Laminating Division, a separately identifiable component
of Rams business. At December 31, 2015, the division
has not been completely sold. However, negotiations for
the final and complete sale are progressing in a positive
manner, and it is probable that the disposal will be
completed within a year. Analysis of the records disclosed
the following:
Operating loss for the year
P899,000
Loss on disposal of some assets during 2015
50,000
Expected operating loss in 2016
450,000
Expected gain in 2016 on disposal of division
200,000
Assuming a 35% tax rate, how much will be reported as

In 2015, Ram Industries decided to discontinue its

Laminating Division, a separately identifiable
component of Rams business. At December 31, 2015,
LOSS completely
899,000
the division OPERATING
has not been
sold. However,
LOSS ON DISPOSAL OF ASSETS
50,000
negotiations
for
the
final
and
complete
sale
are
TOTAL LOSS
949,000
progressing in a positive manner, and it is probable that
the disposal will be completed within a year. Analysis of
the records
following:
949,000disclosed
X (100%- 35%)the
= LOSS
ON
OPERATIONS
ignore
OperatingDISCOUNTED
loss for the
year
P899,000
LOSS =
Loss on disposal
of616,850
some assets during 2015
ignore
50,000
Expected operating loss in 2016
450,000
Expected gain in 2016 on disposal of division
200,000