2.2 KHK Electricity Company Limited, a power generation entity, is discussing a

Question

2.2 KHK Electricity Company Limited, a power generation entity, is discussing a plan to sell a disposal group, a power generating plant, that represents a significant portion of its regulated operations. The sale requires approval from the relevant regulatory bodies which could extend the period required to complete the sale beyond one year Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm purchase commitment is obtained. However, a firm purchase commitment is highly probable within one year Discuss when KHK can classify the plant as held for sale.

Explanation / Answer

IFRS 5 Non-Current Assets held for sale and discontinued operations outlines how to account for no current assets held for sale. In general term assets held for sale are not depreciated,are measured at the lower of carring ammount and fair value less cost to the sale, and are presented saperately in the statement of finanacial position. IFRS 5 achieves substatntial convergence with the requirements of US SFA 144 Accounting for the impairment or Disposal of Long Lived Assets with respect to timing of the classification of operations as discontinued opeartions and the presentaions of such opeartions.

Key provisions of IFRS 5 relating to assets held for sale

Held-for-sale classification:

According to the above guidelines, the classification held for slae when asset is immediately available for sale and sell should take palce within 12 months of classification. So in this case, KHK canclassify the plants as a held for sale only happened after KHK has indentifyes their buyer and a firm purchase commitment is obtained.

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