Question 1

What is the objective of Ind AS 105, and what does it cover?

Accepted Answer

The objective of Ind AS 105 is to prescribe the accounting treatment for non-current assets held for sale and the presentation and disclosure of discontinued operations. It covers the criteria for classifying assets as held for sale, accounting for such assets, and the implications for discontinued operations.

Question 2

How is a “non-current asset held for sale” defined under the standard?

Accepted Answer

A ‘non-current asset held for sale’ is defined under IFRS 5 as an asset that is expected to be sold rather than used, and it must be available for immediate sale in its present condition. It should meet specific criteria, including being actively marketed and expected to sell within one year.

Question 3

What criteria must be met before an asset can be classified as “held for sale”?

Accepted Answer

An asset can be classified as ‘held for sale’ when management is committed to a plan to sell the asset, it is available for immediate sale in its present condition, and the sale is expected to occur within one year.

Question 4

What qualifies as a “discontinued operation” according to Ind AS 105?

Accepted Answer

According to Ind AS 105, a discontinued operation is a component of an entity that has been disposed of or is classified as held for sale, which represents a separate major line of business or geographical area of operations, and has a significant impact on the entity's financial results.

Question 5

When should a disposal group be classified as “held for sale” versus “ongoing operations”?

Accepted Answer

A disposal group should be classified as 'held for sale' when it is available for immediate sale in its present condition and its sale is highly probable, typically within one year. In contrast, ongoing operations are those assets that are not intended for sale and are part of the normal business activities of the entity.

Question 6

At what point should non-current assets or disposal groups be remeasured to fair value less costs to sell?

Accepted Answer

Non-current assets or disposal groups should be remeasured to fair value less costs to sell when there is a triggering event indicating that their carrying amount may not be recoverable, such as a significant decline in market value or changes in the business environment.

Question 7

How should depreciation be treated once an asset is classified as held for sale?

Accepted Answer

Once an asset is classified as held for sale, depreciation should cease immediately. The asset should be measured at the lower of its carrying amount or fair value less costs to sell, in accordance with IFRS 5 or relevant GAAP standards, ensuring that financial statements reflect the asset's current condition and potential sale value.

Question 8

How are impairment losses (if any) recognized when classifying assets or disposal groups as held for sale?

Accepted Answer

Impairment losses for assets or disposal groups classified as held for sale are recognized when the carrying amount exceeds the fair value less costs to sell. This assessment is crucial to ensure that the assets are reported accurately, reflecting their recoverable amounts.

Question 9

When a previously held-for-sale asset’s circumstances change, how should reclassification be handled?

Accepted Answer

If circumstances change, the asset must be re-evaluated against the criteria for held-for-sale classification. If it no longer meets these criteria, it should be reclassified to its original category and measured at the lower of its carrying amount or fair value less costs to sell.

Question 10

What accounting transition occurs if a disposal group no longer meets the held-for-sale criteria?

Accepted Answer

If a disposal group no longer meets the held-for-sale criteria, it must be reclassified as held for use. This transition requires an impairment assessment to ensure that its carrying amount does not exceed its recoverable amount, impacting the financial statements by potentially recognizing losses.

Question 11

How are assets and liabilities classified as held for sale presented in the statement of financial position?

Accepted Answer

Assets and liabilities classified as held for sale are presented separately in the statement of financial position at the lower of carrying amount or fair value less costs to sell. This classification indicates that the assets are expected to be sold within a year, providing users with clearer insight into the company's liquidity and operational focus.

Question 12

Where should the results of discontinued operations be presented in the income statement?

Accepted Answer

Results from discontinued operations should be presented as a separate line item in the income statement, after income from continuing operations, to clearly distinguish their impact on net income and comply with disclosure requirements.

Question 13

What key disclosures must be made in the notes regarding assets held for sale and discontinued operations?

Accepted Answer

Key disclosures for assets held for sale and discontinued operations include the nature of the assets, the financial impact of the disposal on the financial statements, and the results of operations for the discontinued segment, ensuring transparency for stakeholders.

Question 14

How should the profit or loss from discontinued operations be presented separately from continuing operations?

Accepted Answer

Profit or loss from discontinued operations should be presented as a separate line item in the income statement, below income from continuing operations. This ensures clarity for stakeholders regarding the financial performance of ongoing business activities and complies with disclosure requirements.

Question 15

What detailed information must be disclosed regarding the nature of the discontinued operation or disposal group?

Accepted Answer

Disclosures must include the nature of the discontinued operation, the reasons for discontinuation, the financial performance of the operation up to the date of disposal, and the cash flows generated during the reporting period.

Question 16

Explain how gains or losses on remeasurement of held-for-sale assets are recognized.

Accepted Answer

Gains or losses on remeasurement of held-for-sale assets are recognized in profit or loss. The asset is measured at the lower of its carrying amount and fair value less costs to sell. Any impairment losses are recognized immediately, while any subsequent increases in fair value are recognized only to the extent of previously recognized losses.

Question 17

How are expenses directly attributable to disposal reported in the period of classification as held for sale?

Accepted Answer

Expenses directly attributable to the disposal of an asset classified as held for sale are typically recognized in the period in which the asset is classified as held for sale. These expenses may be deducted from the proceeds of the sale when calculating the gain or loss on disposal.

Question 18

How should unallocated overheads be treated for a disposal group classified as held for sale?

Accepted Answer

Unallocated overheads for a disposal group classified as held for sale should be treated as expenses in the period they are incurred. These costs should not be allocated to the assets of the disposal group, as they do not directly contribute to the operation of the group being sold. This ensures accurate financial reporting and reflects the true performance of the remaining operations.

Question 19

How are comparative periods presented when an entity moves an operation from continuing to discontinued status mid-year?

Accepted Answer

When an operation is moved from continuing to discontinued status mid-year, comparative periods are presented by reclassifying the results of the discontinued operations for prior periods. This ensures consistent reporting and allows users to compare the ongoing performance of the entity, adhering to relevant accounting standards like IFRS 5 or ASC 205.

Question 20

What are the repercussions on earnings per share (EPS) when a notable discontinued operation is reported?

Accepted Answer

When a discontinued operation is reported, it is excluded from the continuing operations in the EPS calculation, which may lead to an increase in EPS if the discontinued operation had losses. This necessitates clear disclosure in financial statements to inform investors about the impact on overall profitability.

Question 21

A company decides to sell a major business line—walk through the accounting steps to classify and report it under Ind AS 105.

Accepted Answer

Under Ind AS 105, the company must first classify the business line as a discontinued operation if it meets the criteria of being a separate major line of business. Next, the assets and liabilities associated with the business line should be measured at the lower of carrying amount or fair value less costs to sell. Finally, the results of the discontinued operation must be reported separately in the income statement and the cash flows presented in the cash flow statement, providing clear visibility to stakeholders.

Question 22

How would you assess when an asset can no longer be classified as held for sale (for example, when the sale stalls or market conditions shift)?

Accepted Answer

An asset can no longer be classified as held for sale if it no longer meets the criteria set out in IFRS 5, such as the likelihood of a sale being completed within a year. Indicators like stalled negotiations or significant changes in market conditions may necessitate reclassification, requiring an impairment review to ensure the asset's carrying value is not overstated.

Question 23

How would you ensure the classification of a disposal group is consistent across consolidating entities?

Accepted Answer

To ensure consistent classification of a disposal group across consolidating entities, I would first establish a uniform framework based on applicable accounting standards. This includes a thorough review of the criteria for classification and ensuring all entities follow the same policies and procedures. Regular communication with all stakeholders and conducting reconciliations would help in maintaining this consistency.

Question 24

What controls or approvals should be in place to validate the held-for-sale classification before reporting?

Accepted Answer

To validate the held-for-sale classification, there should be a formal approval process from management, ensuring that the asset meets the criteria set out in accounting standards. Additionally, a documented assessment should confirm that the asset is available for immediate sale and is being actively marketed. Regular reviews and audits should be conducted to ensure compliance with these controls.

Question 25

How would you prepare disclosure in a scenario where an entire subsidiary is marked as held for sale but the Fair Value Less Costs to Sell estimate is highly judgmental?

Accepted Answer

In preparing disclosure for a subsidiary marked as held for sale, I would ensure compliance with IFRS 5 or ASC 360 guidelines. This involves detailing the criteria for classification as held for sale, the basis for the fair value less costs to sell estimate, and the inherent uncertainties in the valuation process. Transparent disclosure of the judgments used and potential impacts on the financial statements is crucial for stakeholders' understanding.

Ind AS 105 – Non‑current Assets Held for Sale & Discontinued Operations Interview Q&A

A. Scope & Definitions

Q1: What is the objective of Ind AS 105, and what does it cover?

Q2: How is a “non-current asset held for sale” defined under the standard?

Q3: What criteria must be met before an asset can be classified as “held for sale”?

Q4: What qualifies as a “discontinued operation” according to Ind AS 105?

Q5: When should a disposal group be classified as “held for sale” versus “ongoing operations”?

B. Classification & Measurement of Assets Held for Sale

Q6: At what point should non-current assets or disposal groups be remeasured to fair value less costs to sell?

Q7: How should depreciation be treated once an asset is classified as held for sale?

Q8: How are impairment losses (if any) recognized when classifying assets or disposal groups as held for sale?

Q9: When a previously held-for-sale asset’s circumstances change, how should reclassification be handled?

Q10: What accounting transition occurs if a disposal group no longer meets the held-for-sale criteria?

C. Presentation & Disclosure

Q11: How are assets and liabilities classified as held for sale presented in the statement of financial position?

Q12: Where should the results of discontinued operations be presented in the income statement?

Q13: What key disclosures must be made in the notes regarding assets held for sale and discontinued operations?

Q14: How should the profit or loss from discontinued operations be presented separately from continuing operations?

Q15: What detailed information must be disclosed regarding the nature of the discontinued operation or disposal group?

D. Measurement Transitions & Impact

Q16: Explain how gains or losses on remeasurement of held-for-sale assets are recognized.

Q17: How are expenses directly attributable to disposal reported in the period of classification as held for sale?

Q18: How should unallocated overheads be treated for a disposal group classified as held for sale?

Q19: How are comparative periods presented when an entity moves an operation from continuing to discontinued status mid-year?

E. Practical Scenarios & Judgment

Q21: A company decides to sell a major business line—walk through the accounting steps to classify and report it under Ind AS 105.

Q22: How would you assess when an asset can no longer be classified as held for sale (for example, when the sale stalls or market conditions shift)?

Q23: How would you ensure the classification of a disposal group is consistent across consolidating entities?

Q24: What controls or approvals should be in place to validate the held-for-sale classification before reporting?

Q25: How would you prepare disclosure in a scenario where an entire subsidiary is marked as held for sale but the Fair Value Less Costs to Sell estimate is highly judgmental?