Disposal of Non-current Assets and Presentation of Discontinued Operations

Date recorded:

The Board considered comments arising from the exposure draft. The staff noted that some commentators believed the project was not essential to 2005 and need not be completed by March 2004. The Board disagreed and agreed to proceed with the project. The Board reiterated that this was part of the convergence project and that comments should be considered mindful of the objectives of the convergence project. The Board discussed the comment that the focus of the project should be assets retired from active use but agreed to retain the current focus. The Board also agreed to not deal with provisioning consequences of abandoned assets as part of this project but that the topic should be dealt with as part of considerations of IAS 37.

Classification of assets held for sale

The staff recommended that the criterion that the sale should be expected to be completed within a year should be removed, and therefore also the exceptions to that criterion, on the grounds that such a criterion is not needed under (and indeed in some cases might be inconsistent with) the principle that the sale must be highly probable. The staff proposed the following wording in paragraphs 4 and 5:

4. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable.

5. Indications that a sale is not highly probable include:

(a) no commitment from management to a plan to sell

(b) no active programme to locate a buyer and other actions required to complete the plan to sell the asset (or disposal group)has been initiated

(c) the asset (or disposal group)is not being actively marketed for sale at a price that is reasonable in relation to its current fair value

(d) actions required to complete the plan indicate that it is likely that significant changes to the plan will be made or that the plan will be withdrawn."

The Board expressed concern that this would allow entities to classify any asset to be included in this category and believed the reference to 12 months should be reinstated. They believed that there could be exceptions to this such as regulatory approval and examples of such exceptions should be included. The Board believed this could be expressed as a principle with guidance as to how it should be applied.

Measurement of Assets

The staff noted that many commentators did not agree with the measurement proposals in ED 4. The staff believed that these commentators did not understand that the results of these proposals were similar to what would result from applying the revised IAS 16 and 36.

The staff recommended that the proposals in ED 4 in this area be retained. The Board agreed.

Disposal Groups

The staff recommended that the following amendments be made in this area:

(a) the relationship between disposal groups and cash-generating units should be clarified,

(b) the interaction between the scope of ED 4 and the application of the requirements to disposal groups should be clarified,

(c) impairment of any goodwill allocated to a disposal group should not be calculated separately but that the allocation of the impairment loss of the disposal group as a whole should be allocated first to goodwill, consistent with IAS 36,and

(d) the allocation of any remaining impairment loss should be allocated pro-rata to all the assets in the disposal group, consistent with IAS 36.

The Board agreed with a, b and d above but believed c was not necessary.

Commercial Substance

The staff proposed that the standard include wording that states it does not apply to exchanges of assets without commercial substance as detailed in the revised IAS 16. The Board agreed but stated that this should be cross-referenced to IAS 16.

Newly Acquired Assets

The staff recommended adding the following words in this area:

If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale (see paragraph B3 of Appendix B), it shall be measured on initial recognition at the lower of cost and fair value less costs to sell, unless the asset (or disposal group) acquired is part of a business combination, in which case it shall be measured on initial recognition at fair value less costs to sell.

The Board agreed.

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