Full explanation
Overview
The moment a company decides to sell a division, that division has to be measured differently — before a single dollar changes hands, before the sale even closes.
IFRS five covers non-current assets held for sale and discontinued operations. It's a short standard, but it changes three things the instant management commits to a sale: how the asset is measured, whether it keeps depreciating, and how it's shown on the income statement.
Held for sale
Classification requires ALL of these, not just one: the asset is available for immediate sale in its present condition, and the sale is highly probable — an active programme to find a buyer, a committed plan, marketed at a reasonable price, and expected to complete within twelve months.
Lower of the two
Once classified, the asset is measured at the LOWER of its carrying amount and fair value less costs to sell. And it stops being depreciated immediately — even if the actual sale takes another eleven months to close.
That measurement change almost always produces an impairment loss on day one, because fair value less costs to sell is usually below carrying amount. Let's put real numbers on it.
Day-one impairment
Meridian Ltd classifies its packaging division as held for sale. Carrying amount immediately before classification: five million euros. Fair value four point five million, less costs to sell of two hundred thousand — fair value less costs to sell comes to four point three million. Impairment loss: seven hundred thousand euros, straight to profit or loss.
Reversal, capped
A year later the division still hasn't sold, but fair value less costs to sell has recovered to four point six million. Reversal is allowed — but capped at what the carrying amount would have been had the division never been classified held for sale. With depreciation of two hundred fifty thousand a year, that ceiling is four point seven five million. The recovery of three hundred thousand euros sits comfortably under it, so the full reversal is recognised.
A hidden tax asset
A practical consideration easy to miss: that seven hundred thousand euro impairment can create its own deferred tax asset. If the tax base doesn't reduce until the division actually sells, the accounting write-down is a deductible temporary difference — at a twenty-five percent rate, a potential one hundred seventy-five thousand euro deferred tax asset, subject to the same IAS twelve recoverability test as any other.
Sometimes it isn't one asset, it's an entire disposal group — a bundle of assets AND the liabilities directly associated with them, sold together. Think of an entire subsidiary changing hands, not just its factory.
The definition
A discontinued operation is a component that's either a separate major line of business or geographical area, part of a single coordinated disposal plan, or a subsidiary acquired purely with a view to resale. Not every held-for-sale asset qualifies — a single delivery van being sold off doesn't meet this bar.
Held for distribution
IFRS five also covers assets held for distribution to owners — a dividend in specie, where a company hands a non-cash asset straight to shareholders instead of selling it. Same measurement approach applies: the lower of carrying amount and fair value, but this time less costs to DISTRIBUTE, not costs to sell.
One single line
On Meridian's income statement, the packaging division's entire result — trading profit, the seven hundred thousand euro impairment, everything — collapses into ONE line: profit or loss from discontinued operations. Continuing operations are shown completely separately, with their own revenue and costs.
Full breakdown
The notes have to show the actual breakdown behind that one line. For Meridian's packaging division: revenue three point two million euros, expenses two point nine five million — trading profit two hundred fifty thousand. Less the seven hundred thousand euro impairment: a loss before tax of four hundred fifty thousand. A tax credit of one hundred twelve thousand five hundred brings it to a final loss of three hundred thirty-seven thousand five hundred euros — disclosed in full, not just asserted as one number.
Extendable, not free
The twelve-month completion window CAN be extended — but only when the delay is caused by events genuinely beyond the entity's control, and there's real evidence it remains committed to the plan. It is not a free pass to sit on a stale classification indefinitely.
IFRS eighteen changes how the income statement is built — new operating, investing and financing categories, with mandatory subtotals. But discontinued operations sits outside all of that.
Outside the new categories
Those new IFRS eighteen categories only apply to continuing operations. Discontinued operations keeps its own single line, below those new subtotals, exactly where it's always sat. The real effect: continuing-operations profit gets more comparable across companies, which makes the discontinued split stand out even more by contrast — a genuine 2024 consequential amendment, confirmed live, not an invented link.
Disclosure only
IFRS nineteen made its own 2024 consequential amendment too — since a subsidiary applying IFRS nineteen's reduced disclosures still has to apply IFRS five's recognition and measurement rules in full if it holds an asset for sale. The relief is disclosure-only, never recognition.
For an investor, an asset frozen from depreciation the moment it's classified held for sale can flatter near-term profit. And a pattern of held-for-sale reclassifications that never actually sell is worth reading the footnotes for.
Real world
Where this bites in practice: corporate divestitures, spin-offs, and M&A due diligence — aggressive held-for-sale classification can be a lever for making the parts of a business that stay look stronger than they really are.
Sale falls through?
Question: what happens if the sale falls through? The asset reclassifies back to held-and-used, measured at the lower of what its carrying amount would have been had it never been classified held for sale, and its recoverable amount at the date of that decision.
A whole subsidiary?
Question: does held-for-sale classification apply to a whole subsidiary? Yes, as a disposal group — its liabilities transfer and are presented separately too, never netted off against the assets.
Next up: IFRS one, first-time adoption — what happens the first time a company ever prepares its financial statements under IFRS, and the one-time relief that makes the switch survivable.