IFRS 5 Non-Current Assets Held for Sale — Core Rule

A non-current asset (or disposal group) qualifies for held-for-sale classification only when management commits to an active sale plan, the asset is available for immediate sale in its present condition, and a buyer or sale contract is probable within 12 months (IFRS 5.7–8).

How IFRS 5 Non-Current Assets Held for Sale Works

For an asset to meet held-for-sale classification under IFRS 5, all five criteria in paragraph 7 must be satisfied simultaneously:

• Asset must be available for immediate sale in present condition. The asset cannot require significant rework, regulatory approval, or other material modifications before sale. Management must have initiated an active programme to locate a buyer and complete the sale (IFRS 5.7(a)). This is assessed objectively—cosmetic repairs may be acceptable, but major restructuring disqualifies the asset.

• Management must be committed to a plan of sale. This commitment must be documented and communicated; a board resolution or equivalent governance decision is expected evidence. Merely considering a sale is insufficient; the plan must be formal and substantive (IFRS 5.8).

• Sale must be highly probable. An appropriate price must be negotiated or expected in the near term, and there must be evidence of buyer interest or an active marketing campaign. "Highly probable" is IFRS language meaning >90% confidence; it is a stricter test than "probable" in revenue recognition (IFRS 5.8). An entity cannot simply announce an intention to sell—concrete steps must be underway.

• Sale must be expected to complete within 12 months. The one-year window runs from the date of classification (IFRS 5.8). Extensions are allowed if circumstances beyond management's control delay completion (e.g., regulatory approval, litigation), provided the extension was not anticipated at the classification date and the entity remains actively pursuing sale (IFRS 5.9).

• Asset must be actively marketed at a reasonable price. The sale price should reflect fair value (or near-fair value) for a market transaction, not a distressed price. If the entity is forced to accept a price far below book value, this may indicate the held-for-sale criteria were not met at inception (IFRS 5.7(b)).

Once classified as held-for-sale, the asset ceases normal depreciation/amortization (IFRS 5.25) and is measured at the lower of carrying amount and fair value less costs to sell (IFRS 5.15). This often creates a write-down on reclassification.

IFRS 5 Non-Current Assets Held for Sale — Practical Example

A manufacturing entity carries Plant A (a production facility) at €15 million net book value. In March 20X4, the board approves a divestiture plan following a strategic review. By April 20X4, marketing campaigns launch, broker interest emerges, and a preliminary bid of €14.2 million (net of €0.3 million selling costs) is received. Fair value less costs to sell = €14.2 million; fair value = €14.5 million.

At 30 April 20X4, held-for-sale classification criteria are met: committed plan (board approval), immediate sale condition (facility operational, no major repairs needed), highly probable (binding offer in hand), within 12 months (expected close Q3 20X4), and active marketing.

Journal entry on reclassification

The asset is remeasured from €15.0m to €14.2m (lower of carrying amount and fair value less costs to sell). The €0.8m loss flows through OCI or profit & loss depending on whether prior gains are reversed (IAS 2.20 treatment via IFRS 5.22).

If the sale closes in August 20X4 at €14.3 million:

IFRS 5 Non-Current Assets Held for Sale — Common Pitfalls

• Criterion confusion: "intention to sell" vs. "commitment to sell." Many entities reclassify assets too early based on preliminary board discussion rather than formal, documented commitment. Auditors will challenge vague or informal plans; you need a signed board resolution and communicated action plan.

• Failing the "highly probable" test. Entities assume 12-month timeframe alone satisfies criteria, overlooking the need for concrete evidence of buyer interest. A listed asset with no offers or bids, even if actively marketed, may not be "highly probable" within 12 months and should remain held-for-use.

• Neglecting re-measurement at each reporting date. Once classified held-for-sale, assets must be measured at lower of carrying amount and fair value less costs to sell at each period-end (IFRS 5.15). If fair value falls further, additional write-downs occur; reversals are capped at the asset's original carrying amount pre-classification (IFRS 5.20).

IFRS 5 Non-Current Assets Held for Sale — Key Paragraphs

• IFRS 5.7–9: Five-criterion framework for held-for-sale classification and the highly probable test
• IFRS 5.15, 20–21: Measurement model (lower of carrying amount and fair value less costs to sell) and reversal rules
• IFRS 5.25: Suspension of depreciation/amortization upon classification
• IFRS 5.33–36: Disclosure requirements for held-for-sale assets
• IFRS 5.8: Definition of "highly probable" and marketing requirements