IFRS 5: Held for Sale and Discontinued Operations

IFRS 5 governs how a company accounts for non-current assets it intends to sell rather than keep using, and how it reports business segments it is winding down or divesting. In short: once a sale becomes genuinely imminent, the asset (or a bundle of assets and liabilities being sold together) is remeasured at the lower of its existing carrying amount or its fair value less costs to sell, depreciation stops, and the item moves to its own line on the balance sheet. Segments that qualify as discontinued operations are pulled out of continuing results and shown as a single post-tax figure on the income statement. This treatment covers both held for sale and discontinued operations under IFRS 5, and the rules apply from the moment the classification criteria are met, not from the date of the eventual disposal.

When an Asset Qualifies as Held for Sale

Management thinking about a sale is not enough. IFRS 5 sets a high bar, and every condition has to be satisfied at the same time before an asset moves into the held-for-sale category.

Management commitment. The appropriate level of management has committed to a plan to sell and an active search for a buyer is underway.
Immediate availability. The asset can be sold in its present condition, subject only to terms customary for that kind of sale. If meaningful modifications or upgrades have to happen first, it does not qualify.
Reasonable pricing. The asset is being actively marketed at a price that is reasonable relative to its current fair value. An aspirational listing that no buyer would meet does not count.
Highly probable completion. The sale is significantly more likely than not to close, and the steps already taken make withdrawal or major changes unlikely.
One-year window. The sale is expected to complete within twelve months of classification.

The one-year window has some give. If the delay is caused by circumstances outside the entity’s control and the company remains committed to the plan, the classification can survive past twelve months.¹ Taken together, the conditions are meant to ensure the financial statements reflect real, actionable intent rather than a vague possibility.

How Held-for-Sale Assets Are Measured

Once an asset or disposal group is classified as held for sale, it is measured at the lower of its carrying amount or its fair value less costs to sell.¹ Carrying amount is whatever the books already show after prior depreciation and impairment. Fair value is the price the asset would fetch in an orderly transaction between market participants. Costs to sell include only incremental costs directly tied to the disposal, such as legal fees, transfer taxes, and broker commissions; finance costs and income taxes do not count.

From the classification date onward, depreciation and amortization stop. The entity is no longer consuming the asset through use, so continuing to depreciate it would misrepresent its economics.¹

If fair value less costs to sell is lower than the carrying amount at the point of reclassification, the difference is recognized as an impairment loss in profit or loss. On subsequent reporting dates the asset is remeasured. Gains from a rise in fair value less costs to sell can be recognized, but only up to the cumulative impairment previously recognized under IFRS 5 or IAS 36 on the non-current assets within scope.² The asset cannot be written up beyond what it was worth before it was impaired, which keeps entities from using the held-for-sale label to manufacture gains.

Which Assets the Measurement Rules Do Not Reach

IFRS 5’s measurement framework does not apply to every non-current asset. Assets already carried at fair value under other standards are carved out, because the held-for-sale approach would add little on top of a model that already tracks market conditions. The following categories are excluded from the measurement requirements:

Financial assets within the scope of IFRS 9
Investment property accounted for under the fair value model in IAS 40
Biological assets measured at fair value less costs to sell under IAS 41
Deferred tax assets
Employee benefit assets
Assets arising from insurance contracts

These items still get classified and presented as held for sale on the balance sheet when the criteria are met. Only their measurement continues under the standards that normally govern them.

Disposal Groups and Distributions to Owners

Assets are often sold in bundles rather than one at a time. IFRS 5 calls such a bundle a disposal group, and it can range from a single cash-generating unit to a whole cluster, and may include current assets, current liabilities, and even items outside IFRS 5’s measurement scope.¹ What ties them together is that they will be disposed of in a single transaction.

When a disposal group is classified as held for sale, the measurement framework applies to the group as a whole. Items covered by other standards are first remeasured under those standards, and only then is the group’s total carrying amount compared to its fair value less costs to sell.³ Any resulting impairment is allocated to the non-current assets within IFRS 5’s measurement scope, following the allocation order set out in IAS 36.

The standard also reaches non-current assets a company plans to distribute to its owners instead of selling on the open market, such as spinning off a subsidiary by distributing its shares as a dividend.⁴ These assets are measured at the lower of carrying amount and fair value less costs to distribute, depreciation stops on classification, and the presentation requirements mirror those for held-for-sale assets.

When Plans Change

Deals fall through. Buyers walk. Boards change direction. When an asset or disposal group no longer meets the held-for-sale criteria, it comes back out of the category and is measured at the lower of two amounts:⁵

The carrying amount the asset would have had if it had never been classified as held for sale, including any depreciation, amortization, or revaluations that would have been recorded during the interval.
The asset’s recoverable amount at the date the decision not to sell is made.

In practice this means catching up on the depreciation that was skipped while the asset sat in the held-for-sale category. The adjustment flows through profit or loss in the period the criteria stopped being met. The same rule applies to assets that cease to be classified as held for distribution to owners. This is why accountants track what the carrying amount would have been in the absence of reclassification: the reversal calculation depends on it.

What Counts as a Discontinued Operation

A discontinued operation is a component of the entity that has either already been disposed of or is classified as held for sale, and that also represents one of the following:¹

A separate major line of business or a major geographical area of operations
Part of a single coordinated plan to dispose of a separate major line of business or geographical area
A subsidiary acquired exclusively with a view to resale

The word “major” carries weight. Discontinuing a small product variant inside a larger division does not qualify. The component must have its own identifiable cash flows and operations that are clearly distinguishable from the rest of the entity, so that the label is reserved for events that genuinely reshape the company’s future earnings profile.

How It Appears on the Financial Statements

Balance Sheet

Assets classified as held for sale (or held for distribution) appear as a separate line on the statement of financial position, distinct from other non-current assets. Liabilities directly associated with those assets are shown separately in the liabilities section.⁶ Netting the two against each other is not permitted. Prior-period balance sheets are not restated, so the held-for-sale presentation appears only from the classification date forward.

Income Statement

On the statement of comprehensive income, the entity shows a single line for total post-tax profit or loss from discontinued operations. That figure combines the operating results of the discontinued segment with any gain or loss from measuring it at fair value less costs to sell or from its actual disposal.⁷ A breakdown of revenue, expenses, pre-tax profit or loss, and the related income tax must then be given, either on the face of the income statement or in the notes.¹ The separation lets investors evaluate continuing operations without noise from segments on their way out.

Cash Flow Statement

The entity also discloses net cash flows from operating, investing, and financing activities attributable to discontinued operations.⁸ This can appear on the face of the cash flow statement or in the notes. Either way, a reader can strip out the cash impact of the discontinued segment and see what the continuing business generates on its own.

Alignment With US GAAP

IFRS 5 was modeled on FASB’s Statement No. 144, now codified in ASC 360 and ASC 205-20, and the two frameworks are largely aligned. Both require measurement at the lower of carrying amount and fair value less costs to sell, both stop depreciation on reclassification, and both call for separate presentation on the balance sheet and income statement. Differences remain in the detail, particularly around how broadly “discontinued operation” is defined and the treatment of certain disposal groups, but for most transactions the outcomes are similar. The convergence was deliberate: the IASB developed IFRS 5 specifically to narrow the gap between international and American reporting for asset disposals.

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IFRS Foundation. IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations
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IFRS Foundation. Reversal of Disposal Group Impairment Losses Relating to Goodwill
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IFRS Foundation. AP10A – Write-down of a Disposal Group
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IFRS Foundation. International Financial Reporting Standard 5 – Non-current Assets Held for Sale and Discontinued Operations
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IFRS Foundation. IASB Meeting Agenda Paper 6A – IFRS 5 Discontinued Operations
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IFRS Foundation. Discontinued Operations and Cash Flow Measures