What are non-current assets held for sale?

Non-current assets

In the course of the economic activity of a company, it may be the case that the company decide to put one of your non-current assets up for sale and that, therefore, you will recover the investment through the sale and not through its continued use over time. Let's analyze this accounting figure in detail. 

Definition

Non-current assets held for sale are those assets that a company intends to sell in the near future and that are expected to be converted to cash within one year. These assets are kept separate from the company's operating assets and are presented on the balance sheet as a separate group.

Some common examples of non-current assets held for sale are properties, land, buildings, machinery, equipment and interests in other companies.

Requirements

It will be rule 7 “Non-current assets and disposal groups of items held for sale”, of the General accounting plan which regulates this accounting figure, under compliance with certain requirements:

First, the company must have made the decision to sell these assets and have initiated significant actions to complete the sale, such as hiring a real estate agent, setting a sales price, and advertising the assets for sale.

Furthermore, the sale has to be treated with a high probability. To do this, the company must be committed to a sale plan to find a buyer, which must be negotiated actively and through a current fair value of the asset.

Asset Valuation

When classified as non-current assets held for sale, These assets are valued at the lower of their book value and fair value less costs to sell.. Book value refers to the original cost of the asset less accumulated depreciation, while fair value is the estimated market selling price.

Amortization

It is important to highlight that non-current assets held for sale are not amortized, as they are expected to be converted into cash within one year. Additionally, once assets are sold, any gain or loss is recorded on the company's income statement.

The valuation correction for any deterioration that may exist must be taken into account.

Example

A common example of a non-current asset held for sale could be an office building owned by a company that has decided to sell it. Let's assume that the company acquired the building several years ago and used it for its business operations. However, due to changes in its business strategy, the company has decided to focus on its core business and no longer needs the building.

The company has made the decision to sell the building and has initiated actions for its sale. You have hired a real estate firm to represent you and have set a sales price based on market valuation. Additionally, it has begun actively advertising the building to attract potential buyers.

In this case, the office building would be classified as a non-current asset held for sale. On the company's balance sheet, it would be shown separately from other assets and valued at the lower of its book value (original cost less accumulated depreciation) and its fair value less costs to sell.

As long as the building remains a non-current asset held for sale, it would not depreciate. Once the sale is completed, any gain or loss would be recorded on the company's income statement.

In your accounting record, we must take into account:

For the amortization provision for the current year until it is decided to put it up for sale:

Due to its deterioration:

Due to the reclassification as a non-current asset held for sale:

If its book value is less than the fair value, an impairment loss must be recorded:

For the sale of the non-current asset:

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