1. What IND AS 105 Covers — Objective and Scope
IND AS 105 specifies the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. Its core objective is to ensure that assets to be sold are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately, so that users can distinguish the financial effects of continuing operations from those of operations being exited.
2. Classification Criteria — When Sale Is "Highly Probable"
An asset (or a group of assets to be disposed of together, a "disposal group") is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use, and the sale is highly probable. For a sale to be highly probable, all of the following must be true:
- Management, at the appropriate level, is committed to a plan to sell the asset (or disposal group)
- An active programme to locate a buyer and complete the plan has been initiated
- The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value
- The sale is expected to qualify for recognition as a completed sale within one year from the date of classification
- It is unlikely that the plan will be significantly changed or withdrawn
The one-year test can be extended in narrow circumstances — for example, where events or circumstances beyond the entity's control extend the period required to complete the sale, and the entity remains committed to its plan (e.g. a buyer unexpectedly withdraws but a new one is actively being sought on the same terms). A merely optimistic hope of selling within the year isn't enough — the criteria must genuinely all be satisfied at the classification date.
3. Measurement — Lower of Carrying Amount and Fair Value Less Costs to Sell
An asset or disposal group classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell. If carrying amount exceeds fair value less costs to sell, an impairment loss is recognised for the excess. If fair value less costs to sell later increases, a gain can be recognised for the increase — but only up to the amount of the cumulative impairment loss previously recognised (both under IND AS 36 before classification and under IND AS 105 after), never creating a net gain above the original carrying amount.
4. Why Depreciation Stops
Once classified as held for sale, an asset is no longer depreciated or amortised — even if it remains in physical use while a buyer is being found. Depreciation exists to spread an asset's cost over the periods it generates economic benefit through continued operation; once the intention shifts to recovering value principally through sale, that rationale no longer applies, so continuing to charge depreciation would misstate both the expense and the asset's carrying amount relative to what it can actually realise.
5. Disposal Groups
A disposal group is a group of assets to be disposed of together, by sale or otherwise, in a single transaction, together with the liabilities directly associated with those assets. Immediately before initial classification as held for sale, the carrying amounts of the assets and liabilities in the group are measured under whatever standards otherwise apply to them; the group is then measured as a whole at the lower of its (adjusted) carrying amount and fair value less costs to sell, with any resulting impairment loss allocated to reduce the carrying amounts of the non-current assets in the group in the disposal group's scope (following an allocation approach similar in spirit to an IND AS 36 CGU impairment allocation).
6. Discontinued Operations
A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and:
- Represents a separate major line of business or geographical area of operations, or
- Is part of a single coordinated plan to dispose of a separate major line of business or geographical area, or
- Is a subsidiary acquired exclusively with a view to resale
Not every asset sale qualifies — disposing of an individual machine, a minor product line, or a single branch office within a much larger business segment typically doesn't meet the "major line of business or geographical area" threshold, and remains within continuing operations even while held for sale.
7. Presentation of Discontinued Operations
The results of discontinued operations are presented as a single line item on the face of the statement of profit and loss, separate from continuing operations — comprising the post-tax profit or loss of the discontinued operation, and the post-tax gain or loss recognised on the remeasurement to fair value less costs to sell, or on the actual disposal, of the assets constituting it. This single line is then analysed into its components (revenue, expenses, pre-tax profit or loss, and related tax expense) in the notes. Comparative periods presented are restated to show the same operation as discontinued, so the continuing-operations trend line remains comparable across periods.
8. Worked Example — Classification and Measurement
Scenario: On 1 November, the board of Solstice Industries Ltd formally approves and announces a plan to sell its entire packaging division — a separate reportable segment — actively markets it to three interested buyers at a price consistent with its estimated fair value, and expects the sale to close within 6 months. The division's net assets have a carrying amount of ₹12,00,00,000 at the reporting date (31 March), and its estimated fair value less costs to sell is ₹10,50,00,000.
Step 1 — Classification
All five held-for-sale criteria are met on 1 November: committed plan, active buyer search, reasonable asking price, expected completion within a year, and no indication of the plan changing. The packaging division (a disposal group) is classified as held for sale from 1 November, and — since it's a separate major line of business — also qualifies as a discontinued operation.
Step 2 — Measurement
| Item | Amount (₹) |
|---|---|
| Carrying amount at classification | 12,00,00,000 |
| Fair value less costs to sell | 10,50,00,000 |
| Impairment loss recognised | 1,50,00,000 |
From 1 November onward, no further depreciation is charged on the division's PP&E, even though it continues operating normally while a buyer is finalised. In the statement of profit and loss, the packaging division's entire post-tax result for the year — operating profit up to 1 November, plus this ₹1,50,00,000 impairment (net of tax) — is presented as a single "profit/(loss) from discontinued operations" line, separate from the group's continuing operations.
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| Aspect | Old IGAAP (AS 24 — Discontinuing Operations) | IND AS 105 |
|---|---|---|
| Held-for-sale classification and measurement | No dedicated held-for-sale classification or measurement framework | Detailed classification criteria (highly probable sale) and lower-of-carrying-amount-and-FVLCS measurement |
| Depreciation treatment | No explicit rule requiring depreciation to stop | Explicitly ceases from the date of held-for-sale classification |
| Presentation | Additional disclosures about discontinuing operations, without a mandated single-line P&L presentation | Mandatory single-line presentation of discontinued operations' post-tax result, separate from continuing operations |
| Disposal groups | Not a formal concept | Explicit disposal group concept with its own measurement and allocation mechanics |
| Comparative restatement | Less prescriptive | Comparative periods explicitly restated for the discontinued classification |
10. Disclosures Required
For a disposal group classified as held for sale, an entity discloses a description of the asset or disposal group, a description of the facts and circumstances of the sale (or of the plan to dispose), and, where applicable, the expected manner and timing of disposal. For discontinued operations, disclosures include the single amount on the face of the statement of profit and loss representing the total of post-tax profit or loss and post-tax gain or loss on disposal/remeasurement, an analysis of that single amount into revenue, expenses, pre-tax profit/loss and tax, and the net cash flows attributable to operating, investing and financing activities of the discontinued operation.
11. Common Mistakes CAs Make
Error 1 — Classifying an asset as held for sale based on management's intention alone, without an active marketing programme. All five criteria must be satisfied together — a board decision or intention to sell, without genuinely active marketing at a realistic price, does not meet the "highly probable" threshold.
Error 2 — Continuing to depreciate an asset held for sale because it's still physically in use. Depreciation stops from the date of classification regardless of continued physical use — the accounting trigger is the change in how the carrying amount will be recovered, not whether the asset is idle.
Error 3 — Treating every minor asset sale as a discontinued operation. The discontinued-operations threshold requires a separate major line of business or geographical area — selling an individual machine, closing one branch within a larger segment, or exiting a minor product line typically doesn't qualify.
Error 4 — Recognising a gain on a subsequent increase in fair value beyond the previously recognised impairment. Any gain recognised for a later increase in fair value less costs to sell is capped at the cumulative impairment already recorded — it can never create a net write-up above the asset's original carrying amount.
Error 5 — Failing to restate comparative-period figures for the discontinued classification. Once an operation is classified as discontinued, prior periods presented in the financial statements must also show it separately from continuing operations, so trend comparisons remain meaningful.
12. FAQs
What are the criteria for classifying an asset as held for sale under IND AS 105?
An asset (or disposal group) is classified as held for sale when its carrying amount will be recovered principally through a sale transaction rather than continuing use, and the sale is highly probable. For the sale to be highly probable, management must be committed to a plan to sell, an active programme to locate a buyer must have been initiated, the asset must be marketed at a price reasonable relative to its current fair value, the sale should be expected to complete within one year, and it must be unlikely that the plan will be significantly changed or withdrawn.
How is an asset held for sale measured?
An asset (or disposal group) classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell. If the carrying amount exceeds fair value less costs to sell, an impairment loss is recognised for the difference. If fair value less costs to sell subsequently increases, a gain can be recognised for the increase, but only up to the cumulative impairment loss previously recognised.
Why does depreciation stop once an asset is classified as held for sale?
Depreciation is meant to allocate an asset's cost over the periods it is used to generate economic benefits through continued operation. Once an asset is classified as held for sale, its carrying amount will be recovered through sale rather than continued use, so depreciating it further would no longer reflect any real consumption of economic benefit — depreciation (and amortisation) stops from the date of classification, even if the asset is still physically in use while awaiting sale.
What qualifies as a discontinued operation?
A discontinued operation is a component of an entity that either 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 a separate major line of business or geographical area, or is a subsidiary acquired exclusively with a view to resale.
How are discontinued operations presented in the financial statements?
The results of discontinued operations are presented as a single line item on the face of the statement of profit and loss, separate from continuing operations, comprising the post-tax profit or loss of the discontinued operation and the post-tax gain or loss on remeasurement or disposal of the assets constituting it. This single-line presentation is then broken down into its components (revenue, expenses, tax) in the notes, and comparative periods are restated to reflect the same discontinued classification.
Is IND AS 105 the same as IFRS 5?
IND AS 105 is India's converged version of IFRS 5 and follows the same held-for-sale classification criteria, the lower-of-carrying-amount-and-fair-value-less-costs-to-sell measurement rule, and the discontinued operations presentation requirement. It replaces the older Indian AS 24 (Discontinuing Operations), which covered disclosure of discontinuing operations but did not include the detailed held-for-sale classification and measurement framework, or the single-line statement of profit and loss presentation, that IND AS 105 introduced.