Non-Current Asset Held For Sale

A non-current asset held for sale is one that a company intends to sell soon, with its value recovered through the sale rather than continued use. To qualify for this classification, the asset must be ready for immediate sale, actively marketed at a reasonable price, and have a high probability of being sold within a year. Additionally, the decision to sell should be firm, with little risk of reversal. Once classified, the asset is measured at the lower of its book value or fair value less costs to sell, with any impairment losses reflected in the income statement. On the balance sheet, these assets appear under current assets, clearly labeled and no longer subject to depreciation. Companies are also required to provide detailed disclosures, including the asset’s description, sale circumstances, valuation assumptions, and any risks that might affect the sale, ensuring stakeholders have full transparency.

Key Takeaways

Non-Current Asset Held For Sale

A non-current asset held for sale refers to an asset that the company expects to sell in the near future. The carrying amount of the asset will be recovered through the sale rather than continuous use. Proper classification, valuation, and disclosure of such assets are essential to ensure accurate and transparent financial reporting.

Criteria for Classifying a Non-Current Asset as Held for Sale

Before an asset can be classified as “held for sale,” the following criteria must be fulfilled:

1. Immediate Availability for Sale
   The asset must be ready for sale in its current condition. No significant investments or modifications should be required before selling.
2. Active Marketing at a Reasonable Price
   The entity must actively seek buyers and offer the asset at a price aligned with its fair value. A lack of marketing efforts or an unrealistic price may prevent classification.
3. Sale Completion Within One Year
   The entity should have a reasonable expectation that the sale will be completed within a year. If delays occur due to uncontrollable circumstances (e.g., regulatory approvals), the asset can remain classified as held for sale provided there is evidence of continued commitment.
4. Highly Probable Sale
   Management must be actively engaged in the sale process, with firm plans and reasonable expectations that the sale will soon be finalized.
5. No Significant Reversal of Sale Decision
   Once classified as held for sale, it should be unlikely that the entity will reverse the decision to sell the asset.

Valuation of a Non-Current Asset Held for Sale

When classified as held for sale, the asset is measured at the lower of its carrying amount (book value) or fair value less costs to sell. Here’s how each component is defined:

• Carrying Amount: The value of the asset recorded in the books, adjusted for depreciation or revaluation.
• Fair Value: The price the asset would fetch in an arm’s length transaction between knowledgeable, willing parties.
• Costs to Sell: Direct expenses associated with selling the asset, such as legal fees, commissions, and transaction costs.

If the fair value less costs to sell is lower than the carrying amount, the company must recognize an impairment loss in the income statement. Conversely, if the fair value exceeds the carrying amount, no gain is recorded until the sale is finalized.

Valuation requires significant judgment, including market analysis and cost estimation. Management must consider factors like current market conditions and the asset’s characteristics when determining fair value.

Presentation on the Financial Statements

Once classified as held for sale, the asset must be presented under current assets on the balance sheet, separate from other non-current assets. This clear presentation helps stakeholders identify assets expected to be liquidated soon and assess the company’s short-term liquidity.

Key presentation rules include:

• No Depreciation: Assets held for sale should not be depreciated since they are no longer in active use.
• Revaluation Before Reclassification: If an asset is carried at a revalued amount under the revaluation method, it should be revalued before being classified as held for sale.

Disclosure Requirements

Transparency in reporting assets held for sale is essential. Companies must adhere to specific disclosure guidelines, including:

1. Description of the Asset: A detailed overview of the asset, including its nature, location, and significant features.
2. Facts Surrounding the Sale: Reasons for the sale, intended timing, and any significant conditions or contingencies affecting the transaction.
3. Impairment Losses or Reversals: If an impairment loss has been recognized, details about the amount, assumptions used, and any subsequent reversals must be disclosed.
4. Measurement Basis: The carrying amount and valuation method should be reported, along with key assumptions.
5. Discontinued Operations: If the asset relates to a discontinued business segment, additional details about the financial results and post-tax profit or loss should be provided.
6. Risks and Uncertainties: Companies should highlight any legal, regulatory, or market risks that may impact the asset’s sale or valuation.

Compliance with these disclosure requirements ensures stakeholders have the necessary information to make informed decisions.

Practical Example: Asset Sale in Action

Key Takeaways

• A non-current asset can be classified as held for sale only if it meets specific criteria. These include being immediately available for sale, actively marketed, and having a likely sale expected within one year.
• Valuation involves measuring the asset at the lower of carrying amount and fair value less costs to sell.
• Assets held for sale are presented separately on the balance sheet under current assets, with no further depreciation applied.
• Companies must provide detailed disclosures, including descriptions of the asset, sale circumstances, and valuation assumptions, to ensure transparency.

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