Under IFRS 5 *Non-Current Assets Held for Sale and Discontinued Operations*, a non-current asset (or disposal group) is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use (IFRS 5.6). Two fundamental conditions must both be met simultaneously:

1. The Asset Must Be Available for Immediate Sale

The asset must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets (IFRS 5.7). This means management cannot impose conditions that make the asset unavailable — for example, requiring the business to continue operating until a certain date before completing the transfer.

2. The Sale Must Be Highly Probable

For the sale to be considered highly probable, all of the following indicators must be present (IFRS 5.8):

• Management must be committed to a plan to sell the asset
• An active programme to locate a buyer and complete the plan must have been initiated
• The asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value
• The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification (subject to limited exceptions)
• Actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn

The requirement to complete the sale within one year is a key threshold. However, IFRS 5.9 permits extension beyond one year in specific circumstances where the delay is caused by events or circumstances beyond the entity's control, provided the entity remains committed to its plan. Examples include regulatory approvals being unexpectedly delayed or market conditions deteriorating after an active marketing campaign (IFRS 5 Appendix B, paragraphs B1–B3).

Disposal Groups

IFRS 5 extends the classification criteria to disposal groups — a group of assets to be disposed of together in a single transaction, including any directly associated liabilities (IFRS 5.4). The same criteria apply, and goodwill is included in the disposal group if the group represents a cash-generating unit to which goodwill has been allocated (IFRS 5.87).

Measurement Consequences Upon Classification

Once the held-for-sale criteria are met, the asset is measured at the lower of its carrying amount and fair value less costs to sell (IFRS 5.15). Crucially, depreciation and amortisation cease from the date of reclassification (IFRS 5.25). If the asset is a financial asset, investment property measured at fair value, or biological asset under IAS 41, IFRS 5 measurement requirements do not apply (IFRS 5.5).

Presentation

Held-for-sale assets must be presented separately on the face of the statement of financial position and must not be offset against liabilities (IFRS 5.38). Comparatives are not restated for reclassification (IFRS 5.40).

Practical Tip

The classification date matters significantly — it determines when depreciation stops and when lower-of-cost-or-NRV testing begins. Entities should document management commitment contemporaneously to support the classification date in audits.