IFRS 5 — Writedown of a disposal group

Date recorded:

The IFRIC received a request to add to its agenda an issue with respect to the write-down of a disposal group to the lower of its fair value less costs to sell and its carrying amount when the write-down exceeds the carrying amount of non-current assets.

The submission points out four alternative views:

  • limit the recognised loss to non-current assets only
  • limit the recognised loss to net assets of the disposal group
  • limit the recognised loss to total assets of the disposal group
  • limit the recognised loss to the non-current assets and recognised a liability for the excess to ensure that the disposal group is measured at fair value less costs to sell.

The staff set out a three-step approach to applying the requirements of IFRS 5 and noted that IFRS 5 is not clear on how to account for an impairment loss of a disposal group if triggered by a fair value change in a financial liability. Members questioned whether the allocation of the impairment loss in such a case to scoped-in assets is meaningful for users. Some IFRIC members also felt that the allocation of impairment loss to each asset within a disposal group would not provide additional information to the users. One member made the remark that IFRS 5 was originally written to deal only with non-current assets and that the inclusion of disposal groups may have happened without the necessary thought-process on how all the requirements would apply to disposal groups. The majority of the IFRIC members agreed with the staff's analysis and thought that the question should be expanded to ask what will happen if the value of the disposal group is negative – should an entity then recognise a 'provision for disposal'?

The IFRIC reached a tentative decision to refer the matter to the Board with the recommendation that paragraph 23 of IFRS 5 should be amended to additionally refer to paragraph 105 of IAS 36 (which limits the reduction of the carrying amount of an asset), so that no assets will be reduced to zero and only a liability recognised.

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