ACCA Strategic Business Reporting (SBR) Practice Exam

What should the carrying amount of an asset held for sale be revalued to?

1. Lower of carrying amount and fair value less costs to sell

2. Higher of carrying amount and fair value

3. Historical cost

4. Net realizable value

The correct answer is: Lower of carrying amount and fair value less costs to sell

The carrying amount of an asset held for sale should be revalued to the lower of its carrying amount and its fair value less costs to sell. This approach aligns with the requirements of IFRS 5, which governs the accounting for non-current assets held for sale and discontinued operations. When an asset is classified as held for sale, it is imperative to assess its recoverable amount to ensure that it is not overstated on the balance sheet. The fair value represents the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date, while the costs to sell are the incremental costs directly attributable to the sale of the asset. By revaluing the asset to the lower of these two amounts, the accounting treatment ensures that the asset is not recorded above what can realistically be recovered through its sale. This provision helps in providing a true and fair view of the financial position of the entity, as it reflects a conservative approach to asset valuation. Other options do not adequately capture the required accounting treatment under IFRS 5. For example, using the higher of carrying amount and fair value would not reflect the potential loss on sale, while historical cost does not take into account current market conditions. Similarly, simply referencing net realiz