By Surachai Damnoenwong, Audit Director
The RSM audit firm in Thailand has operated in the Kingdom since 2001 when it was set up due to the demand for such international services in the region. Khun Surachai was involved in the original set us and has led this area of the RSM Thailand business from its very outset.
Non-current assets held for sale
The core principle is that a non-current asset is deemed to be held for sale if its carrying value is expected to be recovered through selling it rather than using it. Making this judgment has two important accounting implications:
- It is carried within current assets in the statement of financial position; and Non-current assets held for sale
- It is not depreciated from the date of reclassification. Non-current assets held for sale
The classification, presentation and measurement requirements for non-current assets or disposal groups held for sale also apply to those that are held for distribution to owners acting in their capacity as owners. Therefore, in general, the requirements discussed in respect of non-current assets and disposal groups that are classified as held-for-sale also apply to those classified as held-for-distribution.
In order to make this judgment, the asset must meet two strict conditions:
- It is available for immediate sale in its present condition at the date classification to “held for sale” is made (this means the asset cannot be in use); and Non-current assets held for sale
- The sale must be highly probable.
The first of these is a fact, whereas the second is an opinion. IFRS 5 offers guidance on when this opinion is likely to be justified. According to IFRS 5, a sale is considered highly probable when all the following are met:
- Management, having the authority to approve the action, commits to a plan to sell the asset
- The assets are available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
- An active marketing program is identified to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
- The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
- The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which a long-lived asset is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset.
A non-current asset (or disposal group) can be classified as held-for-sale if the transaction is subject to shareholder approval based on a qualitative analysis of the substantiveness of the approval process.
The expectation for the sale to be completed within one year of the classification as held-for-sale may be extended in certain circumstances.
If an entity has committed to a sale plan involving the loss of control over a subsidiary, then all assets and liabilities of that subsidiary are classified as held-for-sale when the criteria for held-for-sale classification are met.
Consideration and analysis should additionally be applied to the overall carrying value of the asset held for sale at the time of reclassification. The overall carrying value should be the lower of cost or fair market value less estimated selling costs. If fair value less estimated selling costs is determined to be less than the current book value, an impairment should be reported through earnings in the period of reclassification. The adjusted carrying amount will become the asset’s new basis.
All assets classified as held for sale should not be depreciated. However, any interest and other expenses attributable to the disposal of the asset classified as held for sale shall continue to be accrued and expensed.
Change of plans
If criteria for an asset to be classified as held-for-sale are no longer met, then the asset or disposal group ceases to be held-for-sale. In this case, it should be valued at the lower of the carrying amount before the asset or disposal group was classified as held-for-sale (as adjusted for any subsequent depreciation, amortization or re-valuation), and its recoverable amount at the date of the decision not to sell. Any adjustment to the value should be shown in income from continuing operations for the period.
Example – sale of a building
An entity has agreed in a directors’ meeting to sell a building, and has tentatively started looking for a buyer for the building. The price of the building has been fixed at Baht 40 m and a surveyor has valued the building based on market prices at Baht 35 m. The entity will continue to use the building until another building has been found with equivalent facilities, and in a suitable location for the office staff, who will not be relocated until the new building has been found. Additionally, the entity is planning to sell part of its business and has actively marketed the business at a fair price but before the business can be sold, government approval is required and any sale requires government approval. This means that the sale time is difficult to determine and it may take longer than one year to sell the disposal group.
The building will not be classified as held-for-sale as it is not available for immediate sale because, until new premises have been found, the office staff will remain in the existing building. Also, the directors have only tentatively started looking for a buyer which may indicate that the entity is not committed to the sale. Additionally, the price being asked for the building is above the market price, and is not reasonable compared to that price. It is unlikely that the entity will sell the building for that price. The disposal group, however, would be classified as held-for-sale because the delay is caused by events or circumstances beyond the entity’s control, and there is evidence that the entity is committed to selling the disposal group.
Non-current assets and some groups of assets and liabilities (‘disposal groups’) are classified as held-for-distribution when the entity is committed to distributing the asset or disposal group to its owners.
The classification, presentation and measurement requirements that apply to items that are classified as held-for-sale generally also apply to a non-current asset or disposal group that is classified as held-for‑distribution.
A non-current asset (or disposal group) is classified as held-for-distribution if the entity is committed to the distribution, which is when:
- the assets are available for immediate distribution in their present condition; and
- the distribution is highly probable.
Classification as held-for-sale or held-for-distribution is prohibited when the criteria are met only after the reporting date. Instead, disclosures are required in the notes to the financial statements.
Should you require any advice on the contents of this article or alternatively wish to learn more about the RSM audit Thailand services, please do not hesitate to contact us for more information on [email protected]