Assets Held For Sale refer to Non-current Assets, such as Fixed Assets (real estate, buildings, plants, machinery, vehicles, equipment) or Intangible Assets (goodwill, patents, and trademarks), which an organization wishes to dispose of through sales to other parties.
In order to adapt to an ever-changing market environment caused by the emergence of new competing products or the development of more efficient systems, organizations often seek to dispose of (groups of) assets that are no longer suited to the new environment they face. Discontinuing a business operation or deciding to sell a major asset are important commercial events. These decisions are also likely to have a significant effect on an entity's results and net assets.
Assets Held for Sale in IFRS 5
Both U.S. GAAP (SFAS 144), as well as IAS/IFRS (IFRS 5), mention a number of conditions which need to be met in order to classify an asset as held for sale. Here are the general conditions of IFRS 5 (all of the conditions must be satisfied:
Management is committed to a plan to sell
The asset is available for immediate sale
An active programme to locate a buyer is initiated
The sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)
The asset is being actively marketed for sale at a sales price reasonable in relation to its fair value
Actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn
Consequences of Categorization as 'Assets Held For Sale'
The economic benefit of Assets Held For Sale is obtained through the asset's sale rather than through its continuous use in the business (future economic benefit).
The impact of these events and the way in which they are reported is therefore of much interest to investors, analysts, regulators and other financial statement users.
When organizations actively seek to dispose of assets they currently own, these asset groups should be classified in the balance sheet as "held for sale" if they are expected to be sold within one year.
Assets Held For Sale are measured at the lower of carrying amount (i.e. acquisition cost minus accumulated Depreciation) and Fair Value less costs to sell.
Assets Held For Sale must be considered for impairment both at the time of classification as held for sale and subsequently.
Assets Held For Sale are no longer subject to regular depreciation.