Reclassification of investment property as held for sale

Misapplying IFRS 5 measurement to a fair-value-model investment property can wrongly suppress fair value gains or trigger a spurious impairment, distorting profit or loss the moment a sale decision is made; conversely, missing the held-for-sale trigger on a cost-model property understates impairment and overstates depreciation charges. Getting this wrong misstates both earnings and balance sheet presentation at a highly visible transaction point.

Is the property measured at fair value or under the cost model per IAS 40 before considering any IFRS 5 held-for-sale question? For a fair-value-model property, does fair value continue to be recognized through profit or loss without a spurious IFRS 5 lower-of-cost test being applied? For a cost-model property, does it meet all the held-for-sale criteria (available for immediate sale, highly probable, active marketing, expected within 12 months), and has depreciation ceased from that date? Does the disposal genuinely meet the discontinued-operation definition, or is it a routine single-asset sale that should not be presented as one?

1) Identify the measurement model applied to the property under IAS 40 (fair value model or cost model) before considering IFRS 5 at all.
2) If the property is measured at fair value under IAS 40, conclude that IFRS 5's measurement requirements are scoped out (IFRS 5 explicitly does not change IAS 40 measurement) - continue fair valuing through profit or loss for as long as the property is held.
3) If the property is measured under the IAS 40 cost model, test whether it meets the IFRS 5 held-for-sale criteria: available for immediate sale in its present condition, sale highly probable, active programme to locate a buyer, marketed at a reasonable price, and sale expected within 12 months.
4) If criteria are met and the property is cost-model, reclassify as held for sale, remeasure to the lower of carrying amount and fair value less costs to sell, and cease depreciation from the reclassification date.
5) Separately assess whether the disposal also meets the discontinued operation definition (a separate major line of business or geographical area of operations, or part of a single coordinated plan to dispose) - do not assume every held-for-sale reclassification is a discontinued operation.
6) Reassess the 12-month test each reporting period; if circumstances extend the expected sale period beyond 12 months, confirm whether the extension is due to events beyond the entity's control and the entity remains committed to the sale.

Measurement base depends entirely on the pre-existing IAS 40 model: fair-value-model property continues to be measured at fair value through profit or loss at each reporting date - IFRS 5 does not introduce a lower-of-cost-or-fair-value-less-costs-to-sell test for it. Cost-model property, on meeting held-for-sale criteria, is remeasured once at reclassification to the lower of its carrying amount and fair value less costs to sell, with any write-down recognized in profit or loss; depreciation ceases from that date. Subsequent to reclassification, cost-model held-for-sale property is retested at each reporting date for further write-downs (or limited reversals up to the original carrying amount) if fair value less costs to sell changes, until the sale completes or classification is no longer appropriate, in which case it reverts to the lower of its pre-classification carrying amount (adjusted for depreciation that would have been charged) and recoverable amount.

Present held-for-sale investment property as a separate line within (or adjacent to) investment property, not merged with owner-occupied held-for-sale assets under IFRS 5 unless genuinely reclassified out of IAS 40; disclose: measurement model applied (fair value/cost); fact and expected timing/circumstances of the sale; description of the assets and the facts/circumstances of disposal; whether the disposal meets the discontinued operation definition, and if so present a single amount for discontinued operations in profit or loss; the amount of any fair value gain/loss or impairment recognized in the period and where it is presented; if not classified as held for sale despite management intent to sell, the reasons why.

• Freezing fair value movements once a sale decision is made for a fair-value-model asset, on the mistaken belief that IFRS 5'
• s lower-of-carrying-amount-and-fair-value-less-costs-to-sell rule applies
• continuing to depreciate a cost-model property after it meets held-for-sale criteria
• classifying a routine single-asset portfolio disposal as a discontinued operation without meeting the separate major line of business or geographical area test
• failing to reassess the 12-month sale probability each period and quietly leaving a stale held-for-sale classification on the balance sheet
• omitting the required held-for-sale disclosures (expected timing, circumstances) because management assumes fair-value-model treatment means no incremental disclosure is needed.