IFRS 5 Held for Sale: Classification and Journal Entries

What does IFRS 5 held for sale change?

IFRS 5 held for sale accounting starts before a company completes a disposal. Once an asset qualifies, the accountant changes how it is measured and presented, and stops charging [depreciation](/glossary#depreciation). The practical question is the date those changes begin. A manager mentioning a possible sale is only the start of the evidence you need.

Imagine a manufacturer replacing a packing machine. The old machine still has a carrying amount in the asset register, while the operations team is discussing potential buyers. Your first task is to establish whether the company has reached the classification threshold. The answer determines which figures belong in this month's closing file.

The [IFRS Foundation's overview of IFRS 5](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-5-non-current-assets-held-for-sale-and-discontinued-operations/) describes the shift to recovery mainly through sale, measurement at the lower of carrying amount and fair value less selling costs, cessation of depreciation and separate presentation.

This guide follows individual machines measured using the cost model. It connects the period before disposal with the final [fixed asset disposal entry](/learn/fixed-asset-disposal-journal-entry). Disposal groups, investment properties measured at fair value and other specialised assets require additional scope analysis.

The two businesses below are fictional Saudi companies. All amounts are in SAR. Their examples exclude tax effects and financing, assume no previous impairment before the stated events, and focus on assets that remain eligible for sale throughout the measurement period.

When do IFRS 5 held for sale criteria apply?

Start with a dated evidence file. The asset must be ready for an immediate sale in its existing condition, allowing for customary sale terms, and completion must be highly probable. Management commitment needs support from an active buyer search, a realistic asking price and a credible completion timetable.

Under paragraphs 6–9, completion is normally expected within one year of classification. Specified exceptions address qualifying delays outside the entity's control. The [equivalent paragraph text published by New Zealand's XRB](https://standards.xrb.govt.nz/standards-navigator/nz-ifrs-5/) sets out these requirements; its local reporting concessions are not Saudi rules.

Build your review around actual documents:

• Record when the appropriate management level approved the plan.
• Retain the broker instruction or other evidence that buyer outreach began.
• Compare the asking price with current market evidence.
• Explain any work that must happen before a buyer can take the asset.
• Identify required approvals and assess whether a major change or withdrawal is unlikely.

Suppose a board approves selling equipment in November, but the company insists on completing substantial refurbishment before making it available. Approval alone does not establish readiness for immediate sale. Equally, an advertised price with little connection to market evidence needs explanation before you conclude that completion is highly probable.

Use the first date when all requirements are met. Keep an approval date, listing date and qualification date as separate fields in your working paper. If the requirements are met only after the reporting date, do not backdate classification into that reporting period; paragraph 12 addresses the associated subsequent-event disclosure.

How do you measure the asset on the classification date?

Use a two-step calculation. First, update the asset under the standards that applied immediately before classification. Then compare that updated carrying amount with [fair value](/glossary#fair-value) less costs to sell. This sequencing prevents an old asset-register balance from slipping into the new measurement.

For a cost-model machine, bring depreciation to the classification date and consider any required impairment under the previously applicable standards. The [IAS 16 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-16-property-plant-and-equipment/) explains the cost, depreciation and impairment framework for property, plant and equipment. Our examples assume this review finds no separate pre-classification impairment.

Write the comparison in words beside your calculation: updated carrying amount; estimated market sale value; qualifying selling costs; resulting net amount. Costs to sell are incremental costs directly attributable to disposal, excluding finance costs and income tax expense. A general allocation of head-office salaries is not automatically a selling cost.

Take the lower amount at initial classification. Where the net sale estimate is lower, the difference is an impairment loss. Where it is higher, initial classification alone does not create a gain. Keep the higher estimate as supporting information rather than substituting it for the permitted carrying amount.

The [IAS 36 impairment guide](/learn/impairment-of-assets-ias-36) helps with the preceding impairment review. Once the asset qualifies under IFRS 5, do not replace the held-for-sale comparison with an ongoing-use valuation simply because that produces a more comfortable answer.

In your spreadsheet, label each input with its date and evidence reference. A current valuation paired with last quarter's carrying amount is an inconsistent comparison even if every formula adds up.

Worked example 1: Rimal classifies a packing machine

Rimal Packaging in Riyadh meets all classification requirements on 30 September. Management has approved the sale, engaged a broker and priced the machine reasonably; it is available immediately and completion is expected within six months. The machine's original cost is SAR 900,000, with accumulated depreciation of SAR 300,000 before September's charge.

September depreciation is SAR 20,000. Record this [journal entry](/glossary#journal-entry) first, with all table amounts in SAR:

Accumulated depreciation is now SAR 320,000. Updated carrying amount is SAR 900,000 less SAR 320,000, or SAR 580,000. Assume the required pre-classification review produces no other adjustment. Transfer the updated net amount to a dedicated held-for-sale asset account:

At classification, fair value is SAR 560,000 and qualifying selling costs are estimated at SAR 20,000. Fair value less costs to sell is SAR 540,000. The comparison therefore produces an impairment loss of SAR 40,000, calculated as SAR 580,000 less SAR 540,000.

The closing asset is SAR 540,000. September includes both the SAR 20,000 depreciation charge before classification and the SAR 40,000 impairment loss. From classification onward, depreciation stops while the held-for-sale classification continues.

This example uses a net transfer followed by a direct asset write-down. An accounting system may preserve gross balances in supporting records, but it must reconcile to the same net result. Do not post the transfer twice in different ledgers.

Check the bridge: opening net carrying amount SAR 600,000, less depreciation SAR 20,000, less impairment SAR 40,000, equals SAR 540,000. Cash has not moved. The estimated selling costs help measure the asset; that estimate alone does not establish a separate payable.

Worked example 2: Nakhil limits an impairment reversal

Nakhil Catering in Jeddah classifies a separate machine for sale on 31 October after satisfying the same sale requirements. Cost is SAR 500,000 and accumulated depreciation, already updated to that date, is SAR 200,000. There are no prior impairments, revaluations or other adjustments.

Its carrying amount is SAR 300,000. Fair value is SAR 260,000 and qualifying selling costs are SAR 10,000, giving a net sale measure of SAR 250,000. Nakhil combines the transfer and initial SAR 50,000 impairment in one entry. All amounts below are SAR:

At 31 December, the machine remains unsold and still qualifies. New market evidence supports fair value of SAR 320,000; selling costs remain SAR 10,000. The updated net sale measure is SAR 310,000, an increase of SAR 60,000 from the asset's current SAR 250,000 balance.

The recognised reversal is SAR 50,000. Paragraph 21 limits a subsequent gain to cumulative qualifying impairment previously recognised for the asset under IFRS 5 or IAS 36. Here that history contains only the SAR 50,000 October loss, so the increase in the estimate does not permit booking all SAR 60,000.

The revised carrying amount is SAR 300,000. The remaining SAR 10,000 of the improved net sale estimate stays unrecognised at this measurement date. No sale has occurred and no buyer receivable is recorded.

There is no November or December depreciation while classification continues. Keep the original loss, permitted reversal and updated estimate in separate columns. That makes the cap visible to a reviewer and preserves the history needed for the next reporting date.

Does held for sale also mean a discontinued operation?

These decisions answer different questions. Held-for-sale classification changes the asset's measurement and presentation. A discontinued operation concerns a qualifying component of the business and its results. Selling a machine during routine replacement does not, by itself, establish that a major operation has been discontinued.

The [ACCA technical explanation of discontinued operations](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-5.html) describes the additional test: a disposed-of or held-for-sale component must represent a separate major business line or geographical area, form part of a coordinated plan to dispose of one, or be a subsidiary acquired exclusively for resale.

Rimal and Nakhil continue their existing businesses in our examples. Neither machine is described as such a component. Their impairment losses and reversals therefore remain in continuing operations. Do not move a difficult quarter's expenses into discontinued operations merely because equipment is being sold.

Present a qualifying held-for-sale asset separately from other assets in the statement of financial position. For a disposal group, the group's assets and associated liabilities are shown separately without netting them into one balance. [ICAEW's IFRS 5 summary](https://www.icaew.com/technical/corporate-reporting/ifrs/ifrs-accounting-standards-tracker/ifrs-5-non-current-assets-held-for-sale-and-discontinued-operations) provides a useful overview of the measurement and presentation framework.

In the closing file, connect the displayed amount to the asset schedule and explain the sale circumstances, expected timing, and recognised measurement changes. Where discontinued-operation criteria really are met, the separate result includes the relevant post-tax operating result and measurement or disposal result, with the required supporting analysis. Assess that presentation independently of the individual machine entries.

Common mistakes when accounting for assets held for sale

Choosing the approval date automatically. Read the evidence across all criteria. The date a director signs a proposal can precede readiness, active marketing or a credible sale timetable. Explain any gap rather than forcing every document onto the same date.

Stopping depreciation when a machine becomes idle. Temporary non-use alone does not establish held-for-sale classification. A plan to abandon an asset also requires different analysis from a sale plan. Record the reason for the classification decision, not just the fact that production stopped.

Mixing up the gross price and net sale measure. Rimal's SAR 560,000 fair value becomes SAR 540,000 after qualifying selling costs. Check the valuation basis before comparing it with the SAR 580,000 carrying amount. Keep estimated selling costs separate from liabilities actually incurred.

Treating an improved valuation as an unrestricted gain. Nakhil's net estimate rises by SAR 60,000, while the allowed reversal is SAR 50,000. A good answer shows both numbers and explains the impairment history that creates the cap.

Leaving the classification unchanged after the plan changes. If the criteria cease to be met, paragraphs 26–27 require reassessment and a different measurement: compare the pre-classification carrying amount adjusted as if classification had not occurred with recoverable amount at the decision date, and use the lower. Do not simply restart depreciation on an unchanged held-for-sale balance.

Applying the single-machine shortcut to every asset. Financial assets, fair-value investment property and several other categories have measurement exceptions. Disposal groups add allocation questions. Mark these scope issues before extending the worked examples to a different transaction.

How can you practise the classification and entries?

Rebuild the two cases without looking at the tables. For each one, write the qualification date, updated carrying amount, fair value, selling-cost estimate and resulting asset balance. Then prepare the entries and reconcile the asset register. A balanced entry is the starting check; the correct recognition date and account balances complete the review.

Try one independent variation on Rimal. Keep its updated carrying amount at SAR 580,000, but change fair value to SAR 610,000 and selling costs to SAR 20,000. The net sale estimate becomes SAR 590,000. Initial classification leaves the asset at SAR 580,000, with no impairment and no gain. This variation replaces Rimal's original valuation; it is not a subsequent reversal scenario.

Try a separate variation on Nakhil. Keep the SAR 250,000 balance after initial classification and the original SAR 50,000 impairment history, but let the later net sale measure recover only to SAR 280,000. The reversal is SAR 30,000 and the closing asset is SAR 280,000. Explain why the cap does not restrict this smaller increase.

For practical review, ask a colleague to change one fact while leaving the arithmetic alone: immediate availability, marketing activity or management commitment. Reconsider the classification before reusing your entries. This makes the exercise about the evidence as well as the calculation.

Continue with [journal-entry practice in Accountery](/practice) to work on selecting accounts and reconciling balances. Use the fictional cases here as your own worksheet alongside that practice. Finish each attempt with a short explanation of what changed, which entry records it and how the remaining asset balance is supported.