How does classifying a disposal group as held for sale affect the income statement under IFRS 5?

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AcadiFi · Accepted Answer

IFRS 5 requires specific income statement presentation when a disposal group qualifies as held for sale, and additional presentation when it also meets the discontinued operations definition.

**Held for Sale — Classification Criteria**

A disposal group is classified as held for sale when:
1. The asset is **available for immediate sale** in its present condition.
2. The sale is **highly probable**: management is committed, an active program to locate a buyer has started, the asset is marketed at a reasonable price, and the sale is expected to complete within **12 months**.

**Worked Example — Caldwell Industries Divesting Its Packaging Division:**

Caldwell's board approved the sale of its packaging division on March 1. The division generated $18 million in revenue and $3.2 million in operating profit through the classification date. Post-classification through year-end, it generated $12 million in revenue and $1.8 million in operating profit. The division's carrying amount is $45 million, and fair value less costs to sell is $42 million, triggering a $3 million write-down.

**Income Statement Presentation:**

| Line Item | Amount | Location |
|---|---|---|
| Pre-classification operating profit | $3,200,000 | Discontinued operations |
| Post-classification operating profit | $1,800,000 | Discontinued operations |
| Write-down to FVLCS | ($3,000,000) | Discontinued operations |
| **Net discontinued operations** | **$2,000,000** | Single line, below continuing |

**Critical Presentation Rules:**

1. **Discontinued operations** are presented as a **single amount** on the face of the income statement, below profit from continuing operations.
2. The detailed breakdown (revenue, expenses, write-downs, tax) is disclosed in the **notes** or on the face.
3. Prior-period comparatives must be **re-presented** to show the discontinued operation separately.
4. Depreciation and amortization **cease** from the held-for-sale classification date.
5. The disposal group is measured at the **lower of carrying amount and fair value less costs to sell**.

**Discontinued vs. Held for Sale:**

Not every held-for-sale group qualifies as discontinued operations. A discontinued operation must represent a **separate major line of business or geographical area**, or be a subsidiary acquired exclusively for resale. If it does not, the held-for-sale measurement rules still apply, but results stay within continuing operations.

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How does classifying a disposal group as held for sale affect the income statement under IFRS 5?

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