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LACPA – Roger NasrLACPA – Roger Nasr

July 6, 2006July 6, 2006

IFRS 5 Non-current Assets Held IFRS 5 Non-current Assets Held

for Sale and Discontinued Operationsfor Sale and Discontinued Operations

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Main Content of IFRS 5Main Content of IFRS 5

Definition of a discontinued operation

Very much the same as the definition in IAS 35

Timing of classification as a discontinued operation

When the discontinued operation is disposed of or

meets “held for sale” criteria

Non-current assets / disposal groups

held for sale

Write down to fair value less costs to sell

Depreciation not permitted. Presented separately in the

balance sheet

Results and cash flows of discontinued operations

Presented separately in the income and cash flow

statements

Held for sale classification .

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ScopeScope

The classification and presentation The classification and presentation requirements apply to all recognised non-requirements apply to all recognised non-current assets and to all current assets and to all disposal groupsdisposal groups

Disposal groupDisposal group – – A group of assets and associated liabilities to A group of assets and associated liabilities to

be disposed of, by sale or otherwise, as a be disposed of, by sale or otherwise, as a group in a single transactiongroup in a single transaction

Includes goodwill acquired in a business Includes goodwill acquired in a business combination if the group is a CGU to which combination if the group is a CGU to which goodwill was assigned (IAS 36)goodwill was assigned (IAS 36)

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Held for Sale ClassificationHeld for Sale Classification

““Held for sale” criteria Held for sale” criteria

(para 7,8)(para 7,8)

Available for immediate sale in present condition

Management is committed to a plan to sell

The sale is highly probable

Active program to locate a buyer initiated

Sale generally expected within 12 months

Actively marketed at a reasonable price

Requirements to complete indicate plan won’t alter

AND

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Selected casesSelected casesType of TransactionType of Transaction Held for Held for

Sale? Sale? ReasonReason

Subsidiary to subsidiarySubsidiary to subsidiary NoNo Control remainsControl remains

Subsidiary to associateSubsidiary to associate YesYes Control lost Control lost

Subsidiary to equity- Subsidiary to equity- accounted JVaccounted JV

YesYes Control lostControl lost

Subsidiary to Subsidiary to proportionately proportionately consolidated JVconsolidated JV

YesYes Control lostControl lost

Subsidiary to investmentSubsidiary to investment YesYes Control lostControl lost

Proportionately Proportionately consolidated JV to consolidated JV to associateassociate

YesYes Joint control lostJoint control lost

Equity accounted JV to Equity accounted JV to equity accounted JVequity accounted JV

NoNo Joint control remainsJoint control remains

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Selected casesSelected casesType of TransactionType of Transaction Held Held

for for Sale? Sale?

ReasonReason

Equity-accounted JV to equity-Equity-accounted JV to equity-accounted associateaccounted associate

No No Joint control lost but Joint control lost but method of accounting method of accounting implies no change in implies no change in nature of holdingnature of holding

Proportionately consolidated Proportionately consolidated JV to InvestmentJV to Investment

YesYes Joint control lostJoint control lost

Proportionately consolidated Proportionately consolidated JV to proportionately JV to proportionately consolidated JVconsolidated JV

NoNo Joint control remainsJoint control remains

Equity-accounted JV to Equity-accounted JV to InvestmentInvestment

YesYes Joint control lostJoint control lost

Associate to investmentAssociate to investment YesYes Significant influence Significant influence lostlost

Associate to associateAssociate to associate NoNo Significant influence Significant influence remainsremains

Presentation andDisclosure .

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Discontinued OperationsDiscontinued Operations

Discontinued operationDiscontinued operation

Component **** of an entity that has been

disposed of

represents a separate major line of business or geographical area of

operations, or

Classified as held for sale

part of single co-ordinated plan to dispose of a separate major line of business or geographical area of

operations, or

is a subsidiary acquired exclusively with a view to resale

OR AND

****Operations & cash flows that can be clearly distinguished, operationally and for Operations & cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from rest of entityfinancial reporting purposes, from rest of entity

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Presentation and Disclosure Presentation and Disclosure – Discontinued Operations– Discontinued Operations

A single amount on face of the income statement A single amount on face of the income statement comprising total ofcomprising total of– Post-tax profit or loss of the discontinued operation and Post-tax profit or loss of the discontinued operation and – Post-tax gain or loss recognised on the measurement to Post-tax gain or loss recognised on the measurement to

fair value less costs to sell or on disposalfair value less costs to sell or on disposal An analysis of that amount on face or in the notes into An analysis of that amount on face or in the notes into

– Revenue, expenses and pre-tax profit or loss of Revenue, expenses and pre-tax profit or loss of discontinued operations and the related income tax discontinued operations and the related income tax expense expense

– Gain or loss recognised on measurement to fair value Gain or loss recognised on measurement to fair value less costs to sell or on disposal of the assets or disposal less costs to sell or on disposal of the assets or disposal group(s) constituting the discontinued operation and the group(s) constituting the discontinued operation and the related income tax expenserelated income tax expense

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Income Statement - FunctionIncome Statement - Function Continuing OperationsContinuing Operations 20052005 20042004

Revenue Revenue XX XXCost of salesCost of sales (X)(X) (X)(X)Gross profitGross profit XX XXOther operating incomeOther operating income XX XXDistribution costsDistribution costs (X)(X) (X)(X)Administrative expensesAdministrative expenses (X)(X) (X)(X)Other operating expensesOther operating expenses (X)(X) (X)(X)Finance costs Finance costs ((X)X) (X)(X)Share of profit of associateShare of profit of associate XX XX

__________ __________Profit before tax Profit before tax XX XXIncome tax expense Income tax expense ((X)X) (X)(X)

__________ __________Profit for the period from continuing operationsProfit for the period from continuing operations XX XX

Discontinued OperationsDiscontinued Operations

Profit/ (loss) for the period from discontinued operations Profit/ (loss) for the period from discontinued operations XX (X) (X) __________ __________

Profit for the periodProfit for the period AA BB__________ __________

Attributable to Attributable to :: Equity holders of the parent Equity holders of the parent aa cc Minority interest Minority interest bb dd

__________ __________

AA BB__________ __________

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Presentation and Disclosure Presentation and Disclosure – Discontinued Operations– Discontinued Operations

As a result of this disclosure requirement, As a result of this disclosure requirement, income statement is divided into two sectionsincome statement is divided into two sections– Continuing operationsContinuing operations– Discontinuing operationsDiscontinuing operations

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Presentation and Disclosure Presentation and Disclosure – Discontinued Operations– Discontinued Operations

Various standards require disclosure of totals Various standards require disclosure of totals for entity as a whole for components of for entity as a whole for components of income and expenseincome and expense– The disclosures pre-date IFRS 5 The disclosures pre-date IFRS 5

IFRS 5 splits the income statement and detail IFRS 5 splits the income statement and detail presented on the face relates to continuing presented on the face relates to continuing operationsoperations

One solution - present analyses of these One solution - present analyses of these items between continuing and discontinuing items between continuing and discontinuing operations in notes, and a total for the entity operations in notes, and a total for the entity as a wholeas a whole

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Income Tax DisclosureIncome Tax Disclosure

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Presentation and Disclosure Presentation and Disclosure – Held for Sale– Held for Sale

Non-current assets (or the assets of a Non-current assets (or the assets of a disposal group) are shown separately from disposal group) are shown separately from other assets other assets

The liabilities of the disposal group shall be The liabilities of the disposal group shall be presented separately from other liabilitiespresented separately from other liabilities

Assets and liabilities shall not be offsetAssets and liabilities shall not be offset Major classes of assets and liabilities Major classes of assets and liabilities

disclosed separately either on balance disclosed separately either on balance sheet or notessheet or notes– Exemption for newly acquired subsidiariesExemption for newly acquired subsidiaries

Prior periods are not reclassified Prior periods are not reclassified

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Balance Sheet - Assets Balance Sheet - Assets Non-current assetsNon-current assets 20052005 20042004Goodwill Goodwill XX XXOther intangible assetsOther intangible assets XX XXProperty, plant and equipmentProperty, plant and equipment XX XXAvailable for sale investments Available for sale investments XX XXFinance lease receivablesFinance lease receivables XX XX

__________ __________XX X X

Current assetsCurrent assets __________ __________Inventories Inventories XX XXFinance lease receivablesFinance lease receivables XX XXTrade and other receivablesTrade and other receivables XX XXCash and cash equivalentsCash and cash equivalents XX XX

__________ __________XX XX

Non-current assets classified as held for saleNon-current assets classified as held for sale XX XX __________ __________

XX XX__________ __________

Total assets Total assets XX XX__________ __________

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Balance Sheet - Liabilities Balance Sheet - Liabilities Current liabilitiesCurrent liabilities 20052005 20042004

Trade and other payables Trade and other payables XX XXRetirement benefit obligationRetirement benefit obligation XX XXTax liabilitiesTax liabilities XX XXBank overdrafts and loansBank overdrafts and loans XX XX

__________ __________XX X X

Non-current liabilitiesNon-current liabilities __________ __________Bank loans Bank loans XX XXRetirement benefit obligationRetirement benefit obligation XX X X Deferred tax liabilitiesDeferred tax liabilities XX XXLong-term provisionsLong-term provisions XX XX

__________ __________XX X X

Liabilities directly associated with non-current Liabilities directly associated with non-current assets classified as held for saleassets classified as held for sale XX XX

__________ __________XX XX

__________ __________Total liabilitiesTotal liabilities XX XX

__________ __________

Net assetsNet assets XX XX__________ __________

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Presentation and Disclosure Presentation and Disclosure – Held for Sale– Held for Sale

Ensure IFRS 5 does not adversely affect Ensure IFRS 5 does not adversely affect compliance with disclosure requirements in compliance with disclosure requirements in other standardsother standards– Eg IAS 1 requires the disclosure of total inventory Eg IAS 1 requires the disclosure of total inventory

on face of balance sheeton face of balance sheet When inventory is reclassified as held for sale When inventory is reclassified as held for sale

and presented with other assets in a disposal and presented with other assets in a disposal group on the face, this requirement cannot be group on the face, this requirement cannot be metmet

Suggestion - to meet this requirement and IAS Suggestion - to meet this requirement and IAS 2.36(b), the following analysis could be 2.36(b), the following analysis could be provided in the notesprovided in the notes

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Presentation and Disclosure Presentation and Disclosure – Inventories– Inventories

QuestionsQuestions