• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for March and June 2025 exams.
Get your discount code >>

Asset held for sale?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Asset held for sale?

  • This topic has 10 replies, 3 voices, and was last updated 9 years ago by MikeLittle.
Viewing 11 posts - 1 through 11 (of 11 total)
  • Author
    Posts
  • May 10, 2016 at 9:19 am #314381
    quangtuan
    Participant
    • Topics: 5
    • Replies: 5
    • ☆

    Dear Sir,

    A question in June 2015 exam:

    Metric owns an item of plant which has a carrying amount of $248,000 as at 1 April 2014. It is being depreciated
    at 12½% per annum on a reducing balance basis.
    The plant is used to manufacture a specific product which has been suffering a slow decline in sales. Metric has
    estimated that the plant will be retired from use on 31 March 2017. The estimated net cash flows from the use of
    the plant and their present values are:
    Net cash flows Present values

    $$
    Year to 31 March 2015 120,000 109,200

    Year to 31 March 2016 80,000 66,400

    Year to 31 March 2017 52,000 39,000
    –––––––– ––––––––
    252,000 214,600

    On 1 April 2015, Metric had an alternative offer from a rival to purchase the plant for $200,000.

    Answer :
    Is the lower of its carrying amount ($217,000) and recoverable amount ($214,600) at 31 March 2015.
    Recoverable amount is the higher of value in use ($214,600) and fair value less (any) costs of disposal ($200,000)).
    Carrying amount = $217,000 (248,000 – (248,000 x 12·5%))
    Value in use is based on present values = $214,600

    Could you exlplain the answer, please?

    May 10, 2016 at 11:27 am #314397
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Hi
    Can i discuss here with you sir????

    We need to put this plant under NCA held for sale because it is satisfied
    -the carrying amount of this one will be principally recovered through a sale transaction rather than continuing use (a slow declining is anticipated which will be retired on 31/03/2017, better to sell away )
    -available for sale in its present condition ( can sell away whenever the board receipts an attractive offer)
    -sale is highly probable (the board committed sale of this plant + someone already offered as a result of an active program had been initiated + marketted at a reasonably price)

    The plant is qualified all above criteria therefore we need to put it under NCA held for sale at 31/03/2015
    IAS 23 stated that cost of NCA held for sale is lower of carrying amount and recoverable amount (higher of VIU and FVLC)

    CA of this plant @ 31/03/2015 = 248,000 – 248,000*12.5 % = 217,000

    RA of this plant @ 31/03/2015 = 214,600
    Higher of :
    -VIU @ 31/03/2015(present value of future cash flows) = 109,200+66,400+39,000 = 214,600
    (net cash flow is not what we need)
    -FVLCS @ 31/03/2015 (offer from buyer) = 200,000

    —> cost of NCA held for sale = 214,600 ( lower of 217,000 and 214,600)

    May 10, 2016 at 11:46 am #314398
    quangtuan
    Participant
    • Topics: 5
    • Replies: 5
    • ☆

    Dear em,

    Conditions from IFRS 5

    In general, the following conditions must be met for an asset (or ‘disposal group’) to be classified as held for sale: [IFRS 5.6-8]

    – management is committed to a plan to sell
    – the asset is available for immediate sale
    – an active programme to locate a buyer is initiated

    – the sale is highly probable, within 12 months of classification as held for sale (subject to limited exceptions)
    ==> the plant will be retired from use on 31 March 2017.So there are 2 years if we classify this asset as held for sale on 31/12/2015
    ==> Not meet the requirement that it should be liquidate with 12 months?

    – the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value
    – actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn

    May 10, 2016 at 12:32 pm #314406
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    Recoverable amount is the higher of value in use compared with net realisable value

    That’s a comparison of $214,600 with $200,000

    Value in use is the present value of the cash flows directly attributable to that asset including any cash flow on the disposal of that asset

    Net realisable value is the net amount for which the asset could be sold – in this case, that’s $200,000

    So, recoverable amount is $214,600 (being higher than $200,000)

    This figure is then compared with the carrying value to determine whether or not an impairment is necessary

    Carrying value brought forward from a year ago (1 April, 2014) is $248,000 and the asset is being depreciated at the rate of 12.5% reducing balance. So, after charging this year’s depreciation ($31,000) up to 31 March, 2015, the carrying value has fallen to $217,000 as at 31 March, 2015

    So the comparison of carrying value with recoverable amount is now a comparison of $217,000 with $214,600 and clearly $214,600 is the lower

    Therefore we need to impair (further, additional depreciation) by $2,400

    OK?

    May 10, 2016 at 12:38 pm #314408
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    Why are we talking about IFRS 5 (yes, vuvietquang90, not IAS 23!)

    There is nothing in the question to indicate that the entity is looking to sell this asset!

    This is surely simply an exercise in understanding the way in which recoverable amount is calculated and then compared with carrying value

    May 10, 2016 at 12:49 pm #314412
    quangtuan
    Participant
    • Topics: 5
    • Replies: 5
    • ☆

    Now I understand. Thank you, Sir!

    May 10, 2016 at 12:52 pm #314413
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    Now then, you two! What about this? We are at 31 March 2015 and we’re looking at whether to impair our asset as at that date.

    Carrying value is $248,000 – 12.5% x $248,000 = $217,000

    Value in use AS AT 1 APRIL, 2015 is the income attributable to that asset in the future ie income for the years ended 31 March, 2016 and 31 March, 2017

    It seems to me that the cost of capital is 10% (heavily rounded!) so, as at 31 March, 2015, the present value of the 2 years future earnings are $80,000 x 1/1.1 = $72,727 plus $52,000 x 1/1.1 x 1 / 1.1 = $42,975

    So as at 31 March, 2015, future earnings are $72,727 + $42,975 = $115,702

    At this date an offer of $200,000 was received

    So our comparisons as at 31 March, 2015 are value in use of $115,702 and realisable value of $200,000

    Clearly, $200,000 is the higher and this is then compared with carrying value of $217,000

    The lower is $200,000 and that is the value to which it should be impaired

    That should have put the proverbial cat amongst the pigeons!

    May 10, 2016 at 1:17 pm #314416
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Sorry my bad, ifrs 5 must be correct!!

    @quangtuan
    :
    U must be misunderstood about the retiring of the plan and the disposal time, it’s totally different
    It’s anticipated that will reduce the future economic in the future (31/03/2007)
    Then the board will transfer it into nca held for sale and expected to dispose it within 12 months, after 12 months the disposal of this plant is not be exercised therefore should be put it back nca

    May 10, 2016 at 1:33 pm #314420
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    vuvietquang90 – and that’s why it’s a good idea not to get involved in answering questions from other students ….. particularly when they are specifically addressed to me!

    May 10, 2016 at 2:25 pm #314426
    vuvietquang90
    Member
    • Topics: 36
    • Replies: 88
    • ☆☆

    Sorry sir!!! It never happen again

    May 10, 2016 at 2:29 pm #314429
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    That’s ok, then 🙂

  • Author
    Posts
Viewing 11 posts - 1 through 11 (of 11 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • kadamova.f@gmail.com on Associates (IAS 28) – PUPs – ACCA Financial Reporting (FR)
  • kadamova.f@gmail.com on Associates (IAS 28) – PUPs – ACCA Financial Reporting (FR)
  • bpop on Risk and uncertainty (part 2) – ACCA (AFM) lectures
  • kamo7293 on Financial performance – Example 2 – ACCA Financial Reporting (FR)
  • nevertoolate on CIMA BA2 – Regression analysis

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in