A company may for whatever reason at any given point in time decide to give up on some of its assets. This may be due to discontinuing operations, replacement or something else, however, there are specific treatments for such assets on the balance sheet.

The first and foremost condition is that the asset must be available for immediate sale in its current condition. If it’s continued to be in use, it is questionable if the asset is in fact subject to be sold immediately.

Second condition that must be met is the fact that the sale must be highly probable. This is defined by having a selected buyers who have shown interest, existing market for the asset, reasonable price etc. For any transaction to be probable, obviously an imminent intent and an action plan must be enforced. If any approvals are required, those should also be obtained to ensure the highest probability.

And the third but not less equal requirement is of course the time limit. The sale must be probable in the next 12 months. This arises mainly from the fact that those assets are recognized under current assets and as such, must be realizable in next 12 months. There are extraordinary circumstances when the asset may be held longer as ‘held for sale’ on the balance sheet, but we will not cover those with our post as they are rather unordinary.

As for the value of those assets – they are always recognized at the lower of their carrying amount and fair value less costs to sell. If for an example, the carrying value is 100, but the fair value less costs to sell is 200, the asset stays on the balance sheet in its carrying amount. However, when the values are vice versa, the company recognizes additionally a loss in the income statement from revaluing assets.

When having assets that you think you want to sell, make sure they meet the abovementioned requirements before recognizing them as ‘assets held for sale’ on the balance sheet. And don’t forget to reassess their value on the balance sheet.