Assets Held for Sale
During the natural course of business, banks and other companies may come to the conclusion that a facility or group of assets will be sold. Once this determination has been made, the question arises as to what the potential accounting impact there may be.
Assets which are determined to be sold should be classified as “held for sale” and reported separately from property, plant and equipment on the entities balance sheet. The reclassification needs to occur in the period in which all of the following criteria are met:
- Management, having the authority to approve the action, commits to a plan to sell the asset.
- The assets are available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
- An active marketing program is identified to locate a buyer and other actions required to complete the plan to sell the asset have been initiated.
- The sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year.
- The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which a long-lived asset is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset.
Consideration and analysis should additionally be applied to the overall carrying value of the asset held for sale at the time of reclassification. The overall carrying value should be the lower of cost or fair market value less estimated selling costs. If fair value less estimated selling costs is determined to be less than the current book value, an impairment should be reported through earnings in the period of reclassification. The adjusted carrying amount will become the asset’s new basis.
All assets classified as held for sale should not be depreciated. However, any interest and other expenses attributable to the disposal of the asset classified as held for sale shall continue to be accrued and expensed.