PFRS 56

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS NOTES
PFRS 5 (NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS)

Core principle:
• A noncurrent asset is presented in the classified statement of financial position as a

current asset only when it qualifies to be classified as “held for sale” in accordance with
PFRS 5.
Scope
• PFRS 5 applies to the following non-current assets:

1. Property, plant and equipment
2. Investment property measured under the Cost model
3. Investments in associate or subsidiary or joint venture
4. Intangible assets
Classification of Non-current Assets (or disposal groups) as held for sale
• A non-current asset (or disposal group) is classified as held for sale or held for
distribution to owners if it’s carrying amount will be recovered principally through a sale
transaction rather than through continuing use.
Conditions for classification as held for sale
• A non-current asset (or disposal group) is classified as “held for sale” if all of the
following conditions are met:
1. The asset or disposal group is available for immediate sale in its present condition
subject only to terms that are usual and customary; and
2. The sale is highly probable (i.e., significantly more likely than not).
I. Management is committed to a plan to sell the asset;
II. An active program to locate a buyer has been initiated;
III. The sale price is reasonable in relation to its current fair value;
IV. The sale is expected to be completed within one year; and
V. It is unlikely that the plan of sale will be withdrawn.
Exception to the one-year requirement
• An extension of the period required to complete a sale does not preclude an asset (or
disposal group) from being classified as held for sale if:
1. The delay is attributable to events or circumstances beyond the entity’s control; and
2. There is sufficient evidence that the entity remains committed to its plan to sell the
asset (or disposal group)
Event after reporting period
• If the criteria for classification as held for sale are met after the reporting period, an entity
shall not classify a non-current asset (or disposal group) as held for sale in those
financial statements when issued.
Non-current assets that are to be abandoned
• An entity shall not classify as held for sale a non-current asset (or disposal group) that is
to be abandoned since the asset’s carrying amount will be recovered through continuing
use rather than principally through a sale.
• An entity shall not account for a non-current asset that has been temporarily taken out of
use as if it had been abandoned.
Initial and Subsequent measurement
• Lower of carrying amount and fair value less cost to sell.

• A write-down to fair value less cost to sell, and related reversal thereof, is recognized in
profit or loss.
• Reversal of impairment is recognized as gain to the extent of cumulative impairment loss
that has been recognized.
• Depreciation (amortized) ceases during the period an asset is classified as held for sale.
Changes to a plan of sale
• A non-current asset that ceases to be classified as held for sale shall be measured at the
lower of the asset’s:
1. Carrying amount before it was classified as held for sale, adjusted for any
depreciation, amortization or revaluation that would have been recognized had the
asset not been classified as held for sale, and
2. Recoverable amount at the date of subsequent decision not to sell.
Discontinued operations
• A discontinued operation is a component of an entity that either has been disposed of or

is classified as held for sale, and
1. Represents a major line of business or geographical area of operations;
2. Is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations; or
3. Is a subsidiary acquired exclusively with a view to resale
Component of an entity
• A component of an entity comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the
entity. It can be cash generating unit or group of cash generating units.
Presentation of discontinued operations
• The results of operations of the discontinued operations, including impairment losses

and actual gain on disposal, is presented as a single amount, net of tax, after profit or
loss from continuing operations.
• If a component of an entity qualified as discontinued operation during the year, all of its
result of operations, before and after classification date, shall be classified as
discontinued operations.
Direct costs associated to decision to dispose a component
• Costs or adjustments directly associated with the decision to dispose a component

should be recognized and shown as part of discontinued operations. Examples of such
costs include:
1. Such items as severance pay or employee termination costs,
2. Additional pension costs,
3. Employee relocation expenses, and
4. Future rentals on long-term leases
Comparative Information
• If, in the current year, a component of an entity is classified as discontinued operation,

an entity shall re-present the disclosures for prior periods presented in the financial
statements so that the disclosures relate to all operations that have been discontinued
by the reporting period for the latest period presented.
Events after the reporting period
• If the criteria for classification as discontinued operation are met after the reporting
period but before the financial statements are authorized for issue, the entity shall
disclose the information in the notes as non-adjusting event after the reporting period.
Cessation of classification as held for sale: effect on comparative statement of financial
position
• The cessation of classification as discontinued operation is accounted for

retrospectively; while
• The cessation of classification as held for sale (non-current assets and disposal groups
that are not components of an entity) is accounted for prospectively.
FS presentation
• Non-current assets held for sale and liabilities of disposal groups are presented as a
current asset (current liabilities) but separately from the other assets and liabilities in the
statement of financial position.
• An entity shall not offset the assets and liabilities of a disposal group.
PFRS 6 (EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES)
Exploration and evaluation expenditures
• Exploration for and evaluation of mineral resources is the search for mineral resources,
including minerals, oil, natural gas and similar non-regenerative resources after the
entity has obtained legal rights to explore in a specific area, as well as the determination
of the technical feasibility and commercial viability of extracting the mineral resource.
• Exploration and evaluation expenditures are expenditures incurred by an entity in
connection with the exploration for and evaluation of mineral resources before the
technical feasibility and commercial viability of extracting a mineral resource are
demonstrable.
Accounting for exploration and evaluation expenditures
• PFRS 6 permits entities to develop their own accounting policy for exploration and
evaluation assets which results in relevant and reliable information based entirely on
management’s judgement and without the need to consider the hierarchy of standards in
PAS 8.
• This means that the entity may recognize exploration and evaluation expenditures either
as expense or asset depending on the entity’s own accounting policy
FULL-COST METHOD
• All costs incurred in acquiring, exploring, and developing within a broadly defined cost
center are capitalized and amortized.
• Under this method, costs are capitalized even if a specific project in the cost center was
a failure.
SUCCESSFUL EFFORTS METHOD
• Many costs are capitalized and amortized

• Costs of unsuccessful acquisition and exploration activities are charged to expense.
• Costs whose outcome is unknown are either expensed or capitalized
NOTE: Change in accounting policies (accounting policies, changes in accounting
estimates and errors)
Measurement:
Initial Measurement
• IFRS 6 requires the entity to measure the asset initially at cost

• Some expenditures might be included:
- Acquisition of rights to explore;
- Topographical, geological, geochemical and geophysical studies;
- Exploratory drilling:
- Trenching;
- Sampling; and
- Activities in relation to evaluating the technical feasibility and commercial viability of
extracting a mineral resource
- General and administrative and overhead costs directly attributable (in some cases)
NOTE: Expenditures related to the development of mineral resources (i.e., preparations
for commercial production, such as building roads and tunnels) cannot be recognized as
an exploration and evaluation asset. PPE used to develop or maintain exploration or
evaluation assets also cannot be recognized as exploration and evaluation assets
Subsequent Measurement
• Entity classifies an Exploration and evaluation asset either as

➢ Tangible asset IAS 16
➢ Intangible Assets IAS 38
• After initial recognition, an entity applies one of two measurement models to
exploration and evaluation assets:
➢ The cost model
➢ The revaluation model
Impairment
• IFRS 6 requires exploration and evaluation assets to be assessed for impairment

when facts and circumstances suggest that the carrying amount of an exploration
and evaluation asset may exceed its recoverable amount.

PFRS 56

Uploaded by

Copyright:

Available Formats

PFRS 56

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PFRS 56

Uploaded by

Copyright:

Available Formats

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS NOTES

PFRS 5 (NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS)

• A noncurrent asset is presented in the classified statement of financial position as a

• PFRS 5 applies to the following non-current assets:

• Lower of carrying amount and fair value less cost to sell.

• A discontinued operation is a component of an entity that either has been disposed of or

• The results of operations of the discontinued operations, including impairment losses

• Costs or adjustments directly associated with the decision to dispose a component

• If, in the current year, a component of an entity is classified as discontinued operation,

• The cessation of classification as discontinued operation is accounted for

• Many costs are capitalized and amortized

• IFRS 6 requires the entity to measure the asset initially at cost

• Entity classifies an Exploration and evaluation asset either as

• IFRS 6 requires exploration and evaluation assets to be assessed for impairment

You might also like