IFRS 5: Non-current assets held for sale and discontinued operations

This article addresses the following questions:

• How should non-current assets be classified as held for sale and how to measure them?
• When must the results of discontinued operations be disclosed in the financial statements and in the notes?
• How to present relevant disclosures in the financial statements?

Entities keeping accounting records encounter numerous economic events that require correct recognition in the financial statements at the end of the reporting period. This is not always straightforward – business realities are diverse, and sometimes accountants face unusual, less common transactions. One such area is the treatment of non-current assets held for sale and assets related to discontinued operations, which is comprehensively regulated by International Financial Reporting Standard 5 (IFRS 5).

What criteria must be met for an asset or group of assets to be classified as held for sale and thus appropriately measured and presented in the financial statements? Let us review the guidance and examine potential issues through illustrative examples.

Identification of non-current assets subject to IFRS 5

Under IFRS 5, an entity classifies a non-current asset (or disposal group) as held for sale when all of the following conditions are met:

• the carrying amount of the asset will be recovered primarily through a sale transaction rather than through its continued use,
• the asset (or disposal group) is available for immediate sale in its present condition,
• the sale is highly probable, meaning that:
  • the management of the entity to which the asset belongs is determined to sell the asset,
  • an active programme to locate a buyer is in place,
  • the asset is being marketed for sale at a price that is reasonable in relation to its current fair value,
  • the sale is expected to be completed within 12 months of the asset being classified as held for sale (subject to certain exceptions set out in the standard).

The above classification criteria focus on ensuring that the entity has reached a sufficient level of certainty that the sale of the asset (or disposal group) will actually take place in the near future (within 12 months).

When identifying assets subject to IFRS 5, it is also worth remembering that once an asset is classified as held for sale, the entity must cease to depreciate it. This may occur before the entity's balance sheet date.

Measurement of a non-current asset held for sale

The next step is to properly measure the asset held for sale. The entity measures such an asset at the lower of either its carrying amount or its fair value less costs to sell.

Again, there's a connection here with the planned sale transaction. It's essential to remember that the value of such an asset, once classified as held for sale, cannot exceed its current carrying amount – it may only be lower.

Example of measuring a machine under IFRS 5

To more fully illustrate the classification of a fixed asset as an asset held for sale and its measurement, let us analyse the following scenario:

On 1 January 2023 company XYZ purchased a wood-cutting machine for PLN 20,000 and began depreciating it in the same month. The machine has an expected useful life of 10 years and zero residual value. On 30 September 2025, XYZ decided to sell the machine and began actively locating a buyer (including by publishing online advertisements). The supply of this type of machine is limited, thus demand is evident, so the company reasonably expects the machine to be sold soon. The market value of the asset held for sale as at 30 September 2025 is PLN 13,500. Dismantling the machine to make it available to the buyer will cost PLN 500. 

Considering the above information, all criteria for classifying the asset as held for sale were met on 30 September 2025. How should the machine be presented in Alfa’s financial statements as at 31 December 2025, assuming it has not yet been sold?

Annual depreciation of the machine = PLN 20,000 × 10% = PLN 2,000

Depreciation in 2023 = PLN 2,000 – full year

Depreciation in 2024 = PLN 2,000

Depreciation until September 2025 = PLN 2,000 ÷ 12 × 9 = PLN 1,500

Total accumulated depreciation = PLN 2,000 + PLN 2,000 + PLN 1,500 = PLN 5,500

Carrying amount as at 30 September 2025 = PLN 20,000 – PLN 5,500 = PLN 14,500

Fair value less costs to sell = PLN 13,500 – PLN 500 = PLN 13,000

Since the fair value of the machine less costs to sell is lower than the carrying amount, the machine must be presented in the financial statements as at 31 December 2025 at PLN 13,000, and the difference (PLN 14,500 – PLN 13,000 = PLN 1,500) should be recognised as an impairment loss within other expenses.

Disclosure of a non-current asset held for sale in the financial statements

It should be noted that non-current assets held for sale are presented in the financial statements separately from other assets and shown as single amounts (IFRS 5. 38 prohibits netting).

Discontinued operations

An entity should proceed differently in the event of sale, taking place during the year (or recognition as held for sale), of an item that simultaneously:

• constitutes a separate, major line of business or geographical area of operations,
• is part of a coordinated plan for the disposal of the entity,
• is a subsidiary acquired solely with the intention to resale.

In such cases, the entity must present a separate result from discontinued operations (net of tax) in the statement of profit or loss and other comprehensive income, as well as in the to the financial statements.

Accounting for the disposal of fixed assets can be a complex matter

In summary, the sale of high-value fixed assets constitutes material information and may significantly impact the decisions made by users of the financial statements. Therefore, it is crucial that entities holding such assets comply with IFRS 5 and provide users with transparent information that facilitates the assessment of the financial implications of discontinued operations.

If you require support in this area – or simply wish to ensure that the auditor's review will reveal no irregularities prior to the financial statements audit – we encourage you to seek the support of RSM Poland's statutory auditors. Our experts will be happy to answer any questions and assist your organisation in developing appropriate procedures to ensure the highest quality of financial and accounting processes.