Ind AS 105, titled Non-current Assets Held for Sale and Discontinued Operations, governs the accounting treatment and presentation of non-current assets and disposal groups that an entity intends to sell rather than continue using. The standard aims to ensure that financial statements reflect the economic reality of assets or groups of assets whose carrying amounts are expected to be recovered through sale transactions rather than continuing operations. The standard is particularly relevant when a company makes a strategic decision to dispose of a business component or subsidiary, particularly when the disposal constitutes a significant shift in operations. It also requires specific presentation and disclosure of discontinued operations to improve the relevance and comparability of financial statements.
Meaning and Classification of Non-current Assets Held for Sale
Ind AS 105 provides that a non-current asset or disposal group should be classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition marks a significant shift in the use of the asset and affects how it is measured and presented in the financial statements. The concept of a disposal group is broader than a single asset and includes a group of assets, possibly with liabilities, that an entity intends to dispose of in a single transaction. In such cases, the disposal group is assessed as a unit for classification and measurement under the standard. Once the classification conditions are met, the entity is required to measure the disposal group at the lower of carrying amount and fair value less costs to sell. This measurement criterion differs from the usual accounting principles applicable to non-current assets used in operations, such as the cost model or revaluation model under Ind AS 16.
Criteria for Classification as Held for Sale
The standard prescribes several conditions that must be satisfied simultaneously for an asset or disposal group to be classified as held for sale. First, the asset must be available for immediate sale in its present condition, subject only to terms that are usual and customary for such sales. This means that the asset should not require significant modifications or restructuring before a sale can occur. Second, the sale must be highly probable. This is a crucial requirement and is assessed based on a combination of factors, including the existence of a firm decision by management to sell, initiation of an active program to locate a buyer, the asset being actively marketed at a reasonable price, and a high likelihood of completing the sale within one year. In addition, the actions required to complete the plan should indicate that significant changes to the plan are unlikely and that the plan is not expected to be withdrawn. If these conditions are not met, the asset should not be classified as held for sale, and it continues to be measured and presented according to the relevant Ind AS.
Additional Conditions for Sale to Be Highly Probable
The phrase highly probable implies a strong likelihood that the sale will occur. To assess this, Ind AS 105 lists specific indicators. One of the key indicators is that the appropriate level of management must be committed to a plan to sell the asset or disposal group. This implies that the decision to sell should not be speculative or preliminary. Rather, it should be formalized and supported by a documented plan approved by those with authority to make such strategic decisions. Another requirement is that an active program to locate a buyer and complete the sale plan must have been initiated. This goes beyond expressing interest in selling the asset and involves concrete steps such as engaging brokers, issuing invitations for bids, or conducting negotiations with potential buyers. The asset or disposal group must also be actively marketed for sale at a price that is reasonable for its current fair value. This ensures that the entity is genuinely attempting to sell the asset rather than inflating its value or setting conditions that deter buyers. Lastly, there must be an expectation that the sale will be completed within a year from the classification date, although some exceptions apply.
Application of Ind AS 105 to Subsidiaries
Ind AS 105 includes special provisions for subsidiaries that are classified as held for sale. Paragraph 8A of the standard provides that when a parent entity is committed to a plan involving the loss of control of a subsidiary, it must classify all the assets and liabilities of that subsidiary as held for sale if the criteria of paragraphs 6 to 8 are met. This is irrespective of whether the parent retains a non-controlling interest in the former subsidiary after the sale. This guidance ensures that the loss of control is treated as a significant economic event and that the accounting treatment reflects the change, like the entity’s interest in the subsidiary. Importantly, the classification of the subsidiary’s assets and liabilities as held for sale is not limited to the portion being sold. If the parent is losing control, then all assets and liabilities of the subsidiary are subject to classification as a disposal group. This requirement promotes consistency and comparability in financial reporting when significant changes in ownership interests occur.
Recognition and Measurement at the Date of Classification
Once the criteria for classification as held for sale are met, the entity must measure the disposal group at the lower of its carrying amount and fair value less costs to sell. Any initial or subsequent write-down to fair value less costs to sell is recognized in profit or loss. This is a departure from regular asset measurement principles and reflects the fact that the economic utility of the asset now depends on its recoverable amount through sale. Importantly, the standard prohibits depreciation or amortization of non-current assets while they are classified as held for sale. This is because their future economic benefits are not expected to be realized through use, but through sale. Instead, they are subject to review for impairment in line with the lower of carrying amount and fair value less costs to sell principle. If the fair value less costs to sell increases subsequently, a gain may be recognized but not in excess of the cumulative impairment losses previously recognized.
Presentation in the Financial Statements
Ind AS 105 requires specific presentation in the statement of financial position and statement of profit and loss. In the balance sheet, the assets and liabilities of a disposal group classified as held for sale must be presented separately from other assets and liabilities. This separate classification enhances the clarity of financial statements and helps users identify which components of the business are intended for disposal. In the statement of profit and loss, the results of discontinued operations are presented separately from continuing operations. This includes the post-tax profit or loss of the discontinued operation and any gain or loss recognized on its disposal. Such presentation is crucial for investors, analysts, and other stakeholders because it enables them to evaluate the continuing earnings potential of the business independently of the discontinued components. It also aligns the financial reporting with the underlying economic events, particularly in cases of restructuring or realignment of the business strategy.
Meaning of Discontinued Operations
A discontinued operation is a component of an entity that has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or geographical area, or is a subsidiary acquired exclusively with a view to resale. A component of an entity comprises operations and cash flows that can be distinguished, operationally and for financial reporting purposes, from the rest of the entity. The significance of the component’s contribution to revenue, expenses, or net profit is an important consideration in determining whether its disposal constitutes a discontinued operation. Ind AS 105 requires the results of discontinued operations to be presented as a single amount in the statement of profit and loss, comprising the total of the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized on disposal. Additional details must be disclosed in the notes to ensure transparency and adequate understanding of the transaction’s impact.
Strategic Importance of the Sale Decision
The decision to dispose of a subsidiary or significant business component is typically driven by strategic considerations such as refocusing the business, improving operational efficiency, generating cash, or complying with regulatory requirements. Ind AS 105 ensures that such strategic decisions are adequately reflected in the financial statements in terms of classification, measurement, and presentation. For example, if the disposal results in a loss of control over a subsidiary, it signifies a major transformation in the corporate structure and requires the parent to derecognize the subsidiary’s assets and liabilities and recognize any retained interest under the appropriate standard,,s such as Ind AS 28 for investments in associates. The accounting treatment must align with the strategic reality of the transaction. Users of financial statements must be able to discern whether the change reflects a significant alteration in the business model or merely a restructuring of ownership without a major impact on operations. Ind AS 105 provides the tools and criteria to make this distinction clear.
Implications for Consolidated Financial Statements
When a subsidiary is classified as held for sale and constitutes a discontinued operation, its impact on the consolidated financial statements is substantial. All assets and liabilities of the subsidiary are presented as a disposal group, and the results of its operations are presented separately in the profit and loss statement. The loss of control results in derecognition of the subsidiary from the consolidated balance sheet and recognition of any resulting gain or loss. Any retained interest is remeasured at fair value and accounted for under the relevant standard, typically Ind AS 28. The presentation of discontinued operations and the classification of held-for-sale assets help users understand the performance and financial position of the group without the noise created by operations that are no longer continuing. It also aids in trend analysis and forecasting by allowing users to isolate the impact of discontinued operations from the rest of the business.
Criteria Applied in the Context of a Subsidiary
In the context of a subsidiary, Ind AS 105 sets out clear expectations when the parent entity is committed to a sale plan involving the loss of control. Paragraph 8A specifically states that all assets and liabilities of the subsidiary shall be classified as held for sale when the criteria in paragraphs 6 to 8 are met. This holds regardless of whetherregardlessarent retains a non-controlling interest. Therefore, the moment the parent entity decides to sell a controlling stake in its subsidiary and meets the necessary conditions, it must classify the entire subsidiary, not just the portion being sold, as a disposal group held for sale. This approach ensures a consistent and complete reflection of the economic reality of the transaction. The retained interest is irrelevant to the initial classification. What matters is the loss of control, which transforms the nature of the relationship with the entity and alters how it should be accounted for. The logic behind this treatment lies in the fact that the remaining stake will no longer provide control or the ability to dictate financial and operating policies, thus justifying a different accounting treatment under the relevant standards.
Assessment of Highly Probable Sale in Practice
In practice, assessing whether a sale is highly probable involves judgment and evidence. Management must provide documentation supporting the intent and efforts to sell. This includes minutes from board meetings approving the sale plan, formal engagement with advisors or brokers, public announcements, and any communication with potential buyers. There should also be a demonstrable timeline showing that the sale is expected to be completed within twelve months. The standard recognizes some exceptions where the sale may go beyond one year if the delay is caused by events beyond the entity’s control and there is sufficient evidence of continued commitment to the plan. Nevertheless, these exceptions are narrow and should not be used to bypass the general requirement. A history of abandoned sales plans may raise questions about the credibility of the classification. Therefore, documentation and consistency in action are essential to support the classification and to withstand scrutiny from auditors, regulators, or financial statement users.
Identifying a Discontinued Operation in a Group Context
A subsidiary may qualify as a discontinued operation when it represents a separate major line of business or geographical area of operations. In many cases, subsidiaries are created to manage specific segments or operate in distinct regions. If the sale or classification of the subsidiary meets the criteria for being a major component, its results and cash flows must be presented separately as discontinued operations. The standard emphasizes that discontinued operations are components whose operations and cash flows can be clearly distinguished from the rest of the entity. This clear distinction allows users to evaluate the continuing and discontinued parts of the business independently. The assessment of whether a subsidiary is a major line of business is based on quantitative and qualitative factors, including revenue contribution, operating profit, asset size, and strategic importance. If the disposal results in a strategic shift in operations or has a material effect on the financial position, it should be treated as a discontinued operation. This treatment improves the transparency of financial reporting by isolating the effects of significant transactions from continuing operations.
Practical Steps Following Classification as Held for Sale
Once a subsidiary is classified as held for sale, several accounting actions are required. First, all assets and liabilities of the subsidiary are reclassified into current assets and liabilities on the consolidated balance sheet, presented separately from other items. Second, depreciation and amortization of non-current assets are discontinued. The subsidiary is then measured at the lower of its carrying amount and fair value less costs to sell, and any impairment loss arising from this remeasurement is recognized in profit or loss. The company must also update its disclosures to include information on the nature of the disposal group, the facts and circumstances of the sale, and the expected timing of the completion. In addition, financial statements should disclose the results of the discontinued operation separately in the statement of profit and loss. This includes revenue, expenses, and profit or loss from the discontinued component, as well as any gain or loss on disposal if the transaction is completed in the reporting period. Proper classification and measurement require coordination among accounting, finance, and legal teams to ensure that all aspects of the sale are considered and correctly reflected in the financial reports.
Loss of Control and Its Accounting Consequences
When the sale of a subsidiary results in the loss of control, Ind AS 110 requires the parent to derecognize all assets and liabilities of the subsidiary from the consolidated financial statements. The parent also derecognizes any related non-controlling interest and recognizes any retained interest at fair value. Any resulting gain or loss on the loss of control is recognized in profit or loss. This transaction marks a significant change in the group’s financial structure. The fair value of any retained interest becomes the new carrying amount and is treated under the appropriate standard, typically Ind AS 28, if the retained stake provides significant influence. The derecognition process ensures that the financial statements no longer reflect assets and liabilities over which the parent no longer has control. It also ensures that the carrying amount of the retained interest is updated to reflect its value in the new context. This treatment aligns with the principle that consolidation is based on control, and once control is lost, the basis of accounting changes from full consolidation to either the equity method or fair value measurement, depending on the circumstances.
Reclassification and Measurement of Retained Interest
In the case of a retained interest following the sale of a subsidiary, the remaining stake must be remeasured at fair value on the date control is lost. This is essential to establish a new basis of accounting. If the retained interest qualifies as an associate, it is accounted for using the equity method under Ind AS 28. If it does not meet the criteria for significant influence, it may be accounted for as a financial asset under Ind AS 109. The fair value remeasurement captures the economic reality of the transaction and ensures that the retained interest reflects its recoverable amount. Any difference between the carrying amount of the disposed assets and liabilities, plus the fair value of the retained interest, and the consideration received is recognized as a gain or loss in profit or loss. This ensures a clean break in the accounting for the disposed entity and avoids distortions in future financial results. The new measurement basis is essential for aligning the accounting treatment with the underlying economic substance of the retained interest.
Reporting Requirements for Discontinued Operations
Ind AS 105 prescribes detailed reporting requirements for discontinued operations to enhance the quality and comparability of financial information. The results of discontinued operations must be presented as a single amount in the statement of profit and loss. This amount includes the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognized on disposal. Additional information must be disclosed in the notes to the financial statements. This includes the revenue, expenses, and pre-tax profit or loss of the discontinued operation, and the related income tax expense. If the disposal has not yet occurred, information about the major classes of assets and liabilities classified as held for sale must also be disclosed. These disclosures help users understand the nature, financial effects, and expected timing of the discontinued operation. Proper classification and disclosure ensure that financial statement users can make informed judgments about the future performance and financial position of the entity without the noise of one-off or non-recurring items.
Timing of Classification and Disclosure
The timing of classification as held for sale and as a discontinued operation is critical. Classification must occur when all criteria in Ind AS 105 are met, not based on tentative intentions or future expectations. This typically coincides with the formal approval of the sale plan by management and the commencement of actions to implement the plan. Once classified, the entity must present and disclose the disposal groaccording to according to the standard in the current reporting period. Delay in classification or disclosure may lead to misstatements and affect the reliability of financial statements. The entity must also continuously evaluate the status of the sale and update the classification if circumstances change. For example, if the sale is no longer highly probable, the asset or disposal group must be reclassified out of held for sale and remeasured under the applicable standard. The need for continual assessment and appropriate disclosure is a cornerstone of transparency and reliability in financial reporting.
Application in the Context of Group Realignment
In group restructuring or realignment, the sale of a subsidiary may be part of a broader strategic plan. The decision to sell may be motivated by the need to focus on core competencies, divest underperforming units, or raise capital. Ind AS 105 provides a structured framework for accounting for such transactions. When a subsidiary meets the criteria for held-for-sale classification, and its operations qualify as a discontinued operation, the group must adjust its financial reporting to reflect the change. This includes separate presentation in the balance sheet and profit and loss statement, measurement at the lower of carrying amount and fair value less costs to sell, and cessation of depreciation. Such treatment ensures that users can assess the financial impact of the realignment and the ongoing performance of the continuing operations. The clarity and consistency offered by Ind AS 105 enable better communication of strategic shifts to investors, regulators, and other stakeholders.
Justification for Held for Sale Classification
The subsidiary was available for immediate sale in its present condition and was actively marketed for sale at a price that was considered reasonable relative to its fair value. The company had also initiated an active program to locate a buyer and complete the sale. Furthermore, it was expected that the sale would be completed within twelve months of the classification date. These actions collectively satisfied the standard’s requirement that the sale must be highly probable. Paragraph 8A of Ind AS 105 mandates that in the case of a subsidiary where control will be lost, all assets and liabilities must be classified as held for sale. Advanta was selling a 75 percent stake and would consequently lose control of the subsidiary, qualifying it under this paragraph. The remaining 25 percent interest to be retained temporarily did not prevent the classification, as the emphasis lies on the loss of control rather than the sale of the entire interest.
Strategic Nature of the Sale and Its Impact
The disposal of Structon Engineering, a subsidiary involved in a core line of business, represented a strategic shift for Advanta. According to Ind AS 105, the sale of a major line of business or a geographical area of operations qualifies as a discontinued operation. Structon Engineering represented a significant component of Advanta’s business activities and contributed to its operational and financial results. The decision to dispose of this subsidiary signified a major transformation in the group’s business model, aligning with the definition of a discontinued operation. Therefore, the classification of Structon as a discontinued operation for the year ended 31 March 20X8 was both technically accurate and strategically justified.
Accounting at the Date of Loss of Control
The sale of the 75 percent interest in Structon was completed on 1 July 20X8. This transaction resulted in Advanta losing control over the subsidiary. By Ind AS 110, when control over a subsidiary is lost, the parent must derecognize the assets and liabilities of the former subsidiary from its consolidated financial statements. Any retained interest must be measured at fair value on the date of loss of control and accounted for under the appropriate standard. In Advanta’s case, the remaining 25 percent was reclassified as an investment in an associate and accounted for using the equity method under Ind AS 28. The gain or loss resulting from the disposal and remeasurement of the retained interest was recognized in profit or loss. This accounting treatment is consistent with the principles set out in Ind AS 105 and Ind AS 110 and reflects the economic effect of the transaction.
Subsequent Disposal of the Retained Interest
On 1 December 20X8, the Board approved the sale of the remaining 25 percent interest in Structon. The transaction was completed on 1 April 20X9. While this transaction had its accounting implications, it did not affect the classification of the subsidiary as a discontinued operation for the financial year ending 31 March 20X8. The key point is that the loss of control occurred on July 20X8, and all necessary actions to sell the 75 percent stake were taken before 31 March 20X8. Therefore, the initial classification as a discontinued operation and as held for sale at the end of 20X8 was justified and aligned with Ind AS 105. The subsequent transaction in 20X9 is accounted for separately and does not retrospectively alter the financial reporting for the earlier period.
Financial Reporting Implications for 31 March 20X8
For the financial year ending 31 March 20X8, Advanta’s consolidated financial statements should reflect Structon as a discontinued operation. This includes presenting the assets and liabilities of the subsidiary separately as a disposal group held for sale in the balance sheet. Additionally, the results of Structon’s operations, including revenue, expenses, and profit or loss, must be presented separately in the statement of profit and loss as discontinued operations. This presentation gives users a clear picture of the company’s continuing and discontinued activities and aligns with the intention of Ind AS 105 to provide transparent and comparable financial information. The gain or loss on sale, which was realized after the year-end, is recognized in the subsequent period but does not impact the classification for the year ending 31 March 20X8.
Role of Management, Judgement, and Documentation
The classification of assets or subsidiaries as held for sale and discontinued operations involves significant management judgment. It requires careful consideration of the facts and circumstances, alignment with the standard’s criteria, and thorough documentation to support the classification. In Advanta’s case, the formal approval by the Board, the initiation of actions to find a buyer, the public announcement of the sale plan, and the absence of legal or operational barriers provided strong evidence supporting the held-for-sale classification. Proper documentation of these actions is essential not only for compliance but also for audit and regulatory scrutiny. Entities must ensure that all decisions are recorded, communicated to stakeholders, and executed with consistency to justify the classification and measurement under Ind AS 105.
Accounting for Impairment and Measurement Adjustments
Once classified as held for sale, the subsidiary is measured at the lower of its carrying amount and fair value less costs to sell. If the fair value less costs to sell is lower than the carrying amount, an impairment loss is recognized in profit or loss. This ensures that the financial statements do not overstate the value of the assets intended for sale. Advanta would have been required to assess whether any write-down was needed as of 31 March 20X8 based on the expected selling price and associated costs. If the fair value less costs to sell subsequently increases, the gain would be recognized to the extent it does not exceed the cumulative impairment losses previously recognized. This approach aligns with the conservatism principle and reflects the recoverable value of the assets.
Audit and Disclosure Considerations
The classification of a subsidiary as held for sale and as a discontinued operation is a material matter and is subject to audit attention. Auditors must evaluate the appropriateness of the classification, the timing of the decision, and the evidence supporting management’s judgment. Disclosures must be made in the financial statements regarding the nature of the disposal group, the facts and circumstances leading to the sale, and the expected timing of the transaction. The results of the discontinued operation must be separately disclosed in the profit and loss statement and supported by adequate details in the notes. Advanta, in this case, would need to ensure that all relevant disclosures were made under Ind AS 105, including quantitative and qualitative information that enables users to understand the nature and impact of the discontinued operation. Failure to provide complete and accurate disclosures could result in non-compliance and potential restatements.
Economic and Strategic Communication to Stakeholders
Beyond the technical accounting, the classification of a major subsidiary as a discontinued operation communicates a strategic shift to stakeholders. Investors, analysts, and lenders view such disclosures as indicators of transformation, divestment, or a new business focus. Advanta’s decision to sell a key infrastructure subsidiary suggests a redirection of corporate priorities and resource allocation. By complying with Ind AS 105 and presenting the transaction accurately, the company provides transparency about its strategic goals and financial restructuring. This enhances credibility and helps stakeholders make informed decisions. It also reduces speculation and provides a clear narrative about the company’s future direction, which is particularly important in dynamic business environments.
Presentation and Disclosure Requirements
When an entity classifies a non-current asset or disposal group as held for sale or as discontinued operations, Ind AS 105 imposes specific presentation and disclosure requirements. This ensures that users of the financial statements understand the effects of discontinued operations and assets held for sale on the entity’s financial position and performance. The financial statements must present separately the assets and liabilities of disposal groups classified as held for sale. These assets and liabilities should not be offset and must be shown separately from other assets and liabilities in the balance sheet. Additionally, the major classes of assets and liabilities classified as held for sale must be separately disclosed either in the balance sheet or in the notes. Disclosures must be detailed enough to allow users to evaluate the financial effects of discontinued operations and disposals of non-current assets.
Additional Disclosure Requirements for Discontinued Operations
Entities must disclose a single amount in the statement of profit and loss comprising the total of the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation. The analysis of this single amount must be presented either in the notes or in the statement of profit and loss, and it must separately identify revenue, expenses, pre-tax profit or loss, related tax expense, and gain or loss on disposal. If the discontinued operation includes a non-controlling interest, the entity should present the profit or loss attributable to the parent and the non-controlling interest separately.
Impairment Losses and Reversals
When an asset or disposal group is classified as held for sale, it must be measured at the lower of its carrying amount and fair value less costs to sell. If this results in a loss, the entity must recognize an impairment loss. Ind AS 105 also allows for the reversal of impairment losses for assets classified as held for sale if the fair value less costs to sell increases, provided the reversal does not increase the asset’s carrying amount above what it would have been had no impairment been recognized. However, impairment losses relating to goodwill cannot be reversed. It is important to evaluate the fair value less costs to sell at each reporting date to determine whether an adjustment to the carrying amount is necessary.
Effect of Reclassification on Depreciation and Amortisation
Once an asset or disposal group is classified as held for sale, the entity must stop depreciating or amortizing it. This is because the asset is no longer being used to generate revenue and is expected to be recovered principally through sale. Any subsequent changes in fair value less costs to sell are recognized in profit or loss as they occur. If the asset is later reclassified and the criteria for classification as held for sale are no longer met, depreciation and amortization must resume, and the asset must be measured at the lower of its carrying amount before classification, adjusted for depreciation or amortization, and its recoverable amount at the date of the subsequent decision not to sell.
Accounting Upon Disposal
Upon the sale of a non-current asset or disposal group, the entity must derecognize the assets and liabilities of the disposal group from the balance sheet. The resulting gain or loss on disposal is recognized in profit or loss and disclosed separately. If the sale involves a subsidiary, any difference between the proceeds received and the carrying amount of the subsidiary’s net assets (including any cumulative exchange differences recognized in other comprehensive income) is included in the gain or loss on disposal. The entity must ensure that any residual interests retained after the disposal are measured at fair value and accounted for in accordance with relevant Ind AS, such as Ind AS 109 for financial instruments or Ind AS 110 if control is retained.
Subsidiaries Held for Sale and Consolidation
When a subsidiary is classified as held for sale, the entity must continue to consolidate the subsidiary unless it meets the criteria in Ind AS 110 for loss of control. If control is lost, the parent derecognizes the assets, liabilities, and equity of the subsidiary and recognizes any retained investment at fair value. The gain or loss on loss of control is recognized in profit or loss. If control is not lost, the assets and liabilities of the subsidiary are presented as a disposal group held for sale. Intercompany transactions must be eliminated, and the results of the subsidiary are included in the consolidated financial statements until the date of sale.
Interaction with Other Standards
Ind AS 105 interacts with several other Ind AS standards. For example, Ind AS 36 (Impairment of Assets) is relevant when determining impairment losses before classification as held for sale. Ind AS 110 (Consolidated Financial Statements) guides the control and consolidation of subsidiaries, including those classified as held for sale. Ind AS 16 (Property, Plant and Equipment), Ind AS 38 (Intangible Assets), and Ind AS 40 (Investment Property) provide guidance on the treatment of specific types of non-current assets. Ind AS 112 (Disclosure of Interests in Other Entities) provides additional disclosure requirements for interests in subsidiaries, including those held for sale. The application of Ind AS 105 must consider the combined impact of these standards to ensure compliance and accurate financial reporting.
Practical Considerations and Challenges
Entities may face practical challenges in applying Ind AS 105, especially when determining whether the criteria for classification as held for sale are met. Management must exercise judgment in assessing whether a sale is highly probable and whether the asset is available for immediate sale. Determining the fair value less costs to sell may also require significant estimates and the use of valuation techniques. Entities must establish robust processes for identifying and evaluating assets and disposal groups for classification under Ind AS 105. Timely communication between management, accounting, legal, and operational teams is essential to ensure accurate classification, measurement, and disclosure. Regular training and updates on Ind AS 105 can help ensure consistent application of the standard across the organization.
Conclusion
Ind AS 105 provides a comprehensive framework for accounting and reporting of non-current assets and disposal groups classified as held for sale, including discontinued operations and subsidiaries. Proper application of the standard ensures transparency and relevance in financial reporting, providing users with clear insights into the entity’s disposal activities and discontinued segments. Entities must pay close attention to the classification criteria, measurement requirements, and presentation and disclosure mandates to comply with Ind AS 105. Ongoing evaluation and careful judgment are essential to address practical challenges and achieve accurate financial reporting.