Recognition and Measurement of a Disposal Group Held for Sale Initially and Subsequently

Paragraph 15 of Ind AS 105 requires an entity to measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell. This measurement principle results in recognition of an impairment loss on disposal group for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell.

However, due to improvements in economic factors, an entity may encounter subsequent increase in fair value less costs to sell of a disposal group. In this regard para 22 of the standard states that to recognize a gain for any subsequent increase in fair value less costs to sell of a disposal group to the extent but not in excess of the cumulative impairment loss that has been recognised previously on the non-current assets. Further, for the order of allocation of impairment loss (or any subsequent gain) on the non-current assets in the group, guidance can be taken from Ind AS 36.

In this story, we have answered some questions related to the recognition of the disposal group, the initial measurement value of the disposal group and subsequent change in the fair value less cost to sale resulting in further impairment losses and reversal of impairment loss along with the allocation of impairment losses/ (gains) onto the non-current assets.

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