| Should there be separate classification for non-current assets that are held for sale? |
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The classification of assets and liabilities on the statement of financial position is broadly based on whether assets will be realised or liabilities settled within twelve months of the reporting date. Non-current assets such as land, buildings, and moveable assets are typically held by entities to execute their service delivery and other objectives. If an entity decides to sell non-current assets at year end, arguably their classification should change from non-current to current.
The IPSASB issued a proposed IPSAS on Non-current Assets Held for Sale and Discontinued Operations (issued locally as ED 191) to deal with presentation of non-current assets on the statement of financial position when they are “held for sale”.
In terms of ED 191, assets (or disposal groups) are classified as held for sale and presented as such on the statement of financial position when: - The assets will be sold – In this context, the disposal of the asset must occur through a sale. Assets that will be transferred to another party in a non-exchange transaction or those that will be abandoned, are not in the scope of ED 191.
- The sale of the asset is highly probable – For the sale to be probable, management must be committed to sell the asset and initiated an active programme to locate a buyer. The asset (or disposal group) must be marketed at a reasonable price relative to its fair value, and the sale expected to be executed within 12 months from classification date.
- The asset must be available for immediate sale in its present condition.
If management decides to sell an asset, then its “use” has changed, which means that the asset’s value should reflect the fact that its value will be realised through a sale. When assets (or disposal groups) are classified as held for sale, they are measured at the lower of fair value less costs to sell and their carrying amount. Depreciation of the asset also ceases. If assets (or disposal groups) are measured at their carrying amount and the fair value is materially different, the fair value is disclosed in the notes to the financial statements. |
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| How does this affect the ASB’s work? |
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The ASB issued GRAP 100 on Non-current Assets Held for Sale and Discontinued Operations in 2010. It was subsequently revised based on feedback from stakeholders that the requirements for assets held for sale had limited relevance for the public sector. As disposals of public sector assets are regulated in the local environment, it took entities a significant period of time to complete disposal transactions. Given the length of time taken to complete the transactions, the information in the financial statements lost relevance. The Board decided to require the disclosure of information on planned disposals rather than changing the measurement and presentation of assets.
Based on the IPSASB’s proposals, the Board will need to decide whether local circumstances have changed such that the requirements for assets held for sale need to be reconsidered. |
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| The proposed amendments can be accessed on our website by following this link. The comment deadline locally is 1 October 2021. The ASB will host a roundtable discussion on the 22nd of September 2021 - join us and share your comments. |
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