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In May 2013, Havanna decided to sell one of its regional business divisions through a mixed asset and share deal. The decision to sell the division at a price of $40 million was made public in November 2013 and gained shareholder approval in December 2013. It was decided that the payment of any agreed sale price could be deferred until 30 November 2015. The business division was presented as a disposal group in the statement of financial position as at 30 November 2013. At the initial classification of the division as held for sale, its net carrying amount was $90 million. In writing down the disposal group’s carrying amount, Havanna accounted for an impairment loss of $30 million which represented the difference between the carrying amount and value of
the assets measured in accordance with applicable International Financial Reporting Standards (IFRS).In the financial statements at 30 November 2013, Havanna showed the following costs as provisions relating to
the continuing operations. These costs were related to the business division being sold and were as follows:(i) A loss relating to a potential write-off of a trade receivable which had gone into liquidation. The trade receivable had sold the goods to a third party and the division had guaranteed the receipt of the sale proceeds;
(ii) An expense relating to the discounting of the long-term receivable on the fixed amount of the sale price of the disposal group;
(iii) A provision was charged which related to the expected transaction costs of the sale including legal advice and lawyer fees.
Are we going to classify it as an asset held for sale at the year end , as havnna did not gain shareholder approval before the year end , so the asset was not available for sale in its present condition at year end.
and how are we going to account for prvisions stated above????
It’s not normally necessary to gain shareholder approval for an executive decision like the disposal of a business decision. The idea behind the appointment of a board of directors is so that they will run your company with the intention of providing you with a return on your investment
This isn’t clear: “and the division had guaranteed the receipt of the sale proceeds;”
This looks like a further possible expense facing Havanna. The receivable should have been individually assessed for impairment at the time of reclassification and the possibility of having to honour the guarantee should have been accounted for immediately before the reclassification
This discounting should also be brought into account when determining the net proceeds / net realisable value so $40m discounted less selling costs should be the figure given to the asset held for sale
Upon reclassification as held for sale, the asset should have been impaired down to its fair value which I can only assume is the $40m asking price. From the wording of point number 3, these costs of realisation should also be deducted to arrive at NET realisable value so that particular provision is not necessary if the asset were to be correctly valued as $40 million less realisation costs
The difference between carrying value of $90 million and discounted net realisable value of $40 million together with estimated selling costs (discounted if appropriate) should be expensed this year.
That’s my take on this issue
OK?
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