Asset Held for Sale: Definition, Accounting Treatment, and Financial Reporting

An Asset Held for Sale is a long-lived asset that a company plans to sell rather than continue to use in operations.

When an asset meets specific criteria indicating that a sale is probable and expected within a short time frame, it must be reclassified and measured differently from other long-lived assets.

This article explains the definition, recognition criteria, measurement, and disclosure requirements for Assets Held for Sale under U.S. GAAP (ASC 360-10) and IFRS (IFRS 5), with practical examples and journal entries.

1. What Is an Asset Held for Sale?

An Asset Held for Sale is a noncurrent asset (or disposal group) that:

✦ Is available for immediate sale in its present condition, and.

✦ Sale is highly probable within one year from classification.

Assets held for sale are no longer depreciated and are reported separately on the balance sheet at the lower of carrying amount or fair value less costs to sell.

2. Criteria for Classification as Held for Sale

Under ASC 360-10-45-9 and IFRS 5, an asset (or group) must meet all of the following to be classified as held for sale:

✦ Management commitment to sell the asset

✦ Asset available for immediate sale in present condition

✦ Active program to locate a buyer initiated

✦ Sale expected to be completed within one year

✦ Sale is probable and highly likely

✦ Asset is actively marketed at a reasonable price relative to fair value

If these criteria are not met, the asset continues to be classified as held for use.

3. Initial Measurement

At the date an asset is classified as held for sale...

✦ Measure at the lower of:

• Carrying amount (book value), or

• Fair value less costs to sell

If the fair value less costs to sell is lower than the carrying amount, recognize an impairment loss.

Journal Entry for Impairment at Classification

Suppose:

• Carrying value = $120,000

• Fair value less costs to sell = $100,000

Impairment loss = $20,000

Debit: Impairment Loss – $20,000

Credit: Accumulated Impairment (or Asset Held for Sale) – $20,000

After classification:

✦ Stop depreciating or amortizing the asset.

4. Subsequent Measurement

After initial classification:

✦ Continue measuring at lower of carrying amount or fair value less costs to sell.

✦ Recognize further losses if fair value declines.

✦ Recognize gains (limited to previous write-downs) if fair value increases.

Example – Subsequent Fair Value Change:

• Fair value less costs to sell falls to $90,000 → Record additional impairment loss.

• Fair value rises to $105,000 → Recognize recovery gain only up to $20,000 previously impaired.

5. Accounting for Sale

Upon sale:

✦ Derecognize the asset (and related liabilities if a disposal group).

✦ Recognize any final gain or loss between sale proceeds and carrying amount.

Example – Sale of Asset:

• Carrying amount after impairment = $100,000

• Sale proceeds = $102,000

Debit: Cash – $102,000

Credit: Asset Held for Sale – $100,000

Credit: Gain on Sale of Asset – $2,000

6. Held for Sale – Disposal Group

A disposal group may include:

✦ Asset(s) and liability(ies) to be disposed of together as a unit.

The entire group is assessed collectively:

✦ Measure at lower of carrying amount or fair value less costs to sell for the group.

✦ Classify assets and liabilities separately as current assets and current liabilities if sale is expected within one year.

7. Impact on Financial Statements

✦ Balance Sheet:

• Reclassify asset(s) as “Assets Held for Sale” under current assets

• Related liabilities under current liabilities

✦ Income Statement:

• Impairment losses included in income from continuing operations

• Gains/losses on sale recognized in period of sale

✦ Cash Flow Statement:

• Proceeds from sale included in investing activities cash flows.

8. Reclassification Out of Held for Sale

If an asset no longer meets the criteria:

✦ Reclassify back to long-lived asset held for use.

✦ Measure at the lower of:

• Carrying amount before classification (adjusted for depreciation that would have been recognized), or

• Fair value at reclassification date.

Reverse any impairment loss only if allowed under applicable accounting standards.

9. IFRS vs. U.S. GAAP: Key Differences

10. Disclosure Requirements

Companies must disclose:

✦ Description of asset(s) or disposal group classified as held for sale

✦ Circumstances leading to classification

✦ Major classes of assets and liabilities included

✦ Gains or losses recognized on classification or sale

✦ Continuing involvement with disposed operations, if any