IFRS 5 – Practice Set [QUESTIONS]

PRACTICE QUESTIONS
Question 1
On 1 December 2020, a company became committed to a plan to sell a manufacturing facility and has already
found a potential buyer. The company does not intend to discontinue the operations currently carried out in the
facility. At 31 December 2020 there is a backlog of uncompleted customer orders. The company will not be able
to transfer the facility to the buyer until after it ceases to operate the facility and has eliminated the backlog of
uncompleted customer orders. This is not expected to occur until spring 2021.
Required
Can the manufacturing facility be classified as 'held for sale' at 31 December 2020?

Question No. 2
On 20 October 2019 the directors of a company made a public announcement of plans to close a steel works.
The closure means that the company will no longer carry out this type of operation, which until recently has
represented about 10% of its total turnover. The works will be gradually shut down over a period of several
months, with complete closure expected in July 2020. At 31 December output had been significantly reduced
and some redundancies had already taken place. The cash flows, revenues and expenses relating to the steel
works can be clearly distinguished from those of the subsidiary's other operations.
Required
How should the closure be treated in the financial statements for the year ended 31 December 2019?

Question No. 3
An entity is committed to a plan to sell its headquarters building and has initiated actions to locate a buyer. The
entity will continue to use the building until construction of a new headquarters building is completed. The entity
does not intend to transfer the existing building to a buyer until after construction of the new building is
completed (and it vacates the existing building).
Required:
Can the building be classified as ‘held for sale’?

Question No. 4
An entity is committed to a plan to sell a manufacturing facility in its present condition and classifies the facility
as held for sale at that date. After a firm purchase commitment is obtained, the buyer’s inspection of the
property identifies environmental damage not previously existed. The entity is required by the buyer to make
good the damage, which will extend the period required to complete the sale beyond one year. However, the
entity has initiated actions to make good the damage, and satisfactory rectification of the damage is highly
probable.
Required:
Can the facility be classified as ‘held for sale’?

Question No. 5
An entity is committed to a plan to sell a non-current asset and classifies the asset as held for sale at that date.
(a) During the initial one-year period, the market conditions that existed at the date, the asset was classified
initially as held for sale, deteriorate and, as a result, the asset is not sold by the end of that period. During
that period, the entity actively solicited but did not receive any reasonable offers to purchase the asset and,
in response, reduced the price. The asset continues to be actively marketed at a price that is reasonable
given the change in market conditions.
(b) During the following one-year period, market conditions deteriorate further, and the asset is not sold by the
end of that period. The entity believes that the market conditions will improve and has not further reduced
the price of the asset. The asset continues to be held for sale, but at a price in excess of its current fair value.

Nasir Abbas FCA 2.2.1

Required:
Discuss whether the non-current asset meets the criteria for classification as held for sale in each year.

Question No. 6
On 1 January 2017, AB acquires a building for Rs. 2,000,000 with an expected life of 50 years. On 31 December
2020 AB puts the building up for immediate sale. Costs to sell the building are estimated at Rs. 100,000.
Required
Outline the accounting treatment of the above if the building had a fair value at 31 December 2020 of:
(a) Rs. 2,200,000
(b) Rs. 1,100,000

Question No. 7
Nash purchased a building for its own use on 1 January 2017 for Rs. 10 million and attributed it a 50 year useful
economic life. Nash uses the revaluation model to account for buildings.
On 31 December 2018, this building was revalued to Rs. 12 million.
On 31 December 2019, the building met the criteria to be classified as held for sale. Its fair value was deemed to
be Rs. 11 million and the costs necessary to sell the building were estimated to be Rs. 500,000.
Required:
Journalize above transactions/adjustments till 31 December 2019.

Question No. 8
An entity plans to dispose of a group of its assets. The information regarding the assets forming the disposal
group as on June 30, 2020 is as follows:
Carrying amount Fair values immediately before
(Rs. million) classification as held for sale
(Rs. million)
Goodwill 150 -
Property, plant & equipment 460 400
(carried at revaluation model)
Property, plant & equipment 570 -
(carried at cost model)
Inventory 240 220
Financial assets (equity investment) 180 150
On June 30, 2020 the entity measured the fair value less cost to sell of the group at Rs. 1,300 million.
Required:
Calculate revised carrying amounts as on June 30, 2020.

Question No. 9
A building was purchased on July 1, 2015 at a cost of Rs. 40 million. Initial estimate of useful life was made at 8
years. On June 30, 2017 the building was classified as held for sale. Its fair value less cost to sell was determined
as follows:
Date Fair value less cost
to sell
June 30, 2017 Rs. 27 million
June 30, 2018 Rs. 29 million
On June 30, 2019 the plan to sell the building was changed. Recoverable amount on that date was determined
at Rs. 24 million.
Required:
All journal entries till June 30, 2019.

Nasir Abbas FCA 2.2.2