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In order to meet the criteria for classification as “held for sale,” the following conditions, as per the International Financial Reporting Standards (IFRS) 5, need to be met:
1. Management’s commitment to sell
The parent company’s directors declining the offer of $14 million suggests that they have the intention to sell Claystone Ltd. However, the fact that they have decided not to lower the sale price indicates that they are not actively seeking a sale at the moment. This condition is not clearly met.
2. Active program to locate a buyer
The information provided does not specify if the parent company has an active program to find a buyer. Without an active effort to market and sell the subsidiary, this condition may not be met.
3. The subsidiary is available for immediate sale
It is unclear from the information provided whether Claystone Ltd is available for immediate sale. The decision not to lower the sale price could indicate that the company is not actively seeking immediate sale.
4. The sale is highly probable
The fact that there has been interest from prospective buyers suggests that a sale is probable. However, the parent company’s decision to decline the $14 million offer and the lack of an active program to locate a buyer may raise doubts about the sale’s probability.
5. Active plan to sell within one year
There is not enough information as to whether there is an active plan to sell Claystone Ltd within the next year. If there is no such plan in place, this condition may not be met.
Considering the information provided, it may be concluded that Claystone Ltd cannot be classified as “held for sale.” The decision of the parent company’s directors not to lower the sale price and the lack of an active program to locate a buyer raise doubts about the intention and ability to sell the subsidiary in the near term. Further information about the parent company’s plans and actions regarding the sale would be necessary to make a definitive determination.
Is the summary correct, Claystone Ltd cannot be held as sale?A subsidiary entity, Claystone Ltd, is for sale at a price $ 15 million. There has been some interest from prospective buyers but no sale as yet. One buyer has made an offer of $ 14 million but the directors of the parent company have declined the offer. An accountant firm which was appointed by the parent company has just submitted a report and advice that the fair value of Claystone Ltd is $ 16.5 million. They have decided not to lower the sale price of Claystone Ltd at the moment.
Discuss whether the subsidiary can be classified as held for sale.
Hello Sir can you help me out with this question?