ACCA Strategic Business Reporting (SBR) Practice Exam

What must be done once an asset is classified as held for sale?

1. Update the carrying amount

2. Transfer from current asset to non-current asset

3. Begin annual depreciation immediately

4. Increase the initial carrying amount

The correct answer is: Update the carrying amount

When an asset is classified as held for sale, it is crucial to update its carrying amount in accordance with the requirements set out in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. Under IFRS 5, the asset must be measured at the lower of its carrying amount and fair value less costs to sell. This means reevaluating the asset’s value to reflect its sellable condition, ensuring that any changes in its market value are appropriately captured before the asset is ultimately sold. This process ensures that the financial statements accurately represent the asset’s expected value and potential recovery from sale, showing stakeholders an honest assessment of the company's current financial position. Failing to update the carrying amount could mislead users of the financial statements regarding the entity's financial health. The other choices do not align with the correct treatment of an asset classified as held for sale. For example, transferring from current to non-current asset does not apply since assets held for sale are considered current assets. Annual depreciation also ceases for such assets as they are not expected to generate future economic benefits in the same way. Lastly, an increase in the initial carrying amount contradicts the principle of recognizing the asset at the lower of its carrying amount or fair value less costs