Held for sale: date the criteria before stopping depreciation
A machine stands idle while management considers selling it. Depreciation does not stop merely because nobody is using it or a sale appears in a budget. Under UK-adopted IFRS 5, held-for-sale classification has specific conditions and an identifiable start date. That date determines both the final pre-classification depreciation and the new measurement test.
Establish when the sale qualifies
The carrying amount must be expected to be recovered principally through sale rather than continuing use. The asset must be available for immediate sale in its present condition, subject only to usual terms, and the sale must be highly probable.
IFRS 5 paragraphs 6 to 9 require more than an intention. Relevant evidence includes management commitment, an active buyer-search programme, marketing at a reasonable price relative to current fair value and expected completion within a year. Actions should indicate that significant plan changes or withdrawal are unlikely. Consider required shareholder approval where relevant.
Limited exceptions can extend the one-year period when the specified conditions apply. Temporary idleness and abandonment are not themselves held-for-sale classification. This article covers an owned machine under the IAS 16 cost model; IFRS 5 has measurement exceptions for some other assets.
Measure up to the qualification date
All amounts and dates below are hypothetical. On 1 January 2026 a machine carries £120,000, with five years of remaining useful life, nil residual value and straight-line depreciation of £24,000 annually.
Assume all classification conditions are first met on 1 October. The machine is available for immediate sale, management has committed, an active buyer programme exists and the price is reasonable. Completion is expected within a year and withdrawal is unlikely.
Nine months' depreciation is £24,000 × 9/12 = £18,000. Carrying amount immediately before classification is therefore £102,000. Assume applicable IFRS measurements support that balance and no additional pre-classification impairment is required. IFRS 5 requires that existing-standards measurement work before applying its held-for-sale measure.
Apply the lower amount and stop depreciation
Assume fair value is £95,000 and qualifying incremental direct costs to sell are £5,000. Fair value less costs to sell is £90,000. Compare that with the £102,000 carrying amount and recognise a £12,000 impairment loss.
The net carrying-amount entry is Dr held-for-sale asset £90,000; Dr impairment loss £12,000; Cr property, plant and equipment £102,000. Handle gross cost and accumulated depreciation consistently in the register. The example excludes tax and financing costs; neither is included in IFRS 5's definition of costs to sell.
No depreciation is charged for October to December while the classification continues. Assume the sale remains incomplete at 31 December, both valuation inputs are unchanged and the classification conditions still hold. Present £90,000 separately in the statement of financial position.
This post-classification lower-of test differs from IAS 36's recoverable-amount test. Do not substitute a higher value-in-use amount to avoid the IFRS 5 write-down.
| Date or step | Amount and treatment |
|---|---|
| 1 January carrying amount | £120,000 |
| January to September depreciation | Deduct £18,000 |
| 1 October before classification | £102,000 |
| Fair value less costs to sell | £95,000 - £5,000 = £90,000 |
| Classification write-down | £12,000 impairment loss |
| 31 December, assumptions unchanged | £90,000 held for sale; no October-to-December depreciation |
Keep later qualification out of the earlier year
If October brought only a broad intention and the conditions were first met in January 2027, the machine cannot be classified as held for sale at 31 December 2026. Continue the applicable IAS 16 and IAS 36 work through year end. IFRS 5 requires specified disclosure when the conditions are first met after year end but before authorisation.
Held for sale also does not automatically mean a discontinued operation; that classification has its own criteria. Keep management approval, current-condition evidence, marketing, pricing and expected completion dates with the file. Reassess the conditions and valuation at each reporting date rather than carrying the sale label forward unchecked.