This applies to assets whose value will be recovered through a sale transaction rather than through continuing use.

• Classification Criteria:
  • The asset must be available for immediate sale in its present condition.
  • The sale must be highly probable (e.g., management is committed to a plan, there is active marketing, and the sale is expected within one year).
• Measurement and Presentation:
  • Measured at the lower of its carrying amount and its fair value less costs to sell.
  • Crucially, an asset is no longer depreciated once it is classified as held for sale.
  • It is presented separately on the Statement of Financial Position, often as a current asset.

Example: Non-Current Asset Held for Sale

Ministry of Public Works owns a specialized road grader.

• Acquisition Date: July 1, 2022
• Cost: Ksh 12,000,000
• Useful Life: 10 years (straight-line depreciation, nil residual value)

On June 30, 2025, after three years of use, the Ministry’s management commits to a plan to sell the grader. The grader is available for immediate sale, and an active program to find a buyer has begun. The sale is expected to be completed within a few months.

• Fair Value at June 30, 2025: Ksh 8,000,000
• Estimated Costs to Sell (e.g., auction fees): Ksh 200,000

Step 1: Calculate the Carrying Amount at the Date of Classification (June 30, 2025)

First, we need to calculate the book value of the grader just before it is reclassified.

• Annual Depreciation: Ksh 12,000,000 / 10 years = Ksh 1,200,000 per year
• Accumulated Depreciation (for 3 years): Ksh 1,200,000 × 3 = Ksh 3,600,000
• Carrying Amount: Cost – Accumulated Depreciation
  • Ksh 12,000,000 – Ksh 3,600,000 = Ksh 8,400,000

Step 2: Determine the Correct Measurement for the “Held for Sale” Asset

An asset classified as held for sale is measured at the lower of its carrying amount and its fair value less costs to sell.

1. Carrying Amount: Ksh 8,400,000
2. Fair Value Less Costs to Sell:
   • Ksh 8,000,000 (Fair Value) – Ksh 200,000 (Costs to Sell) = Ksh 7,800,000

The lower of these two values is Ksh 7,800,000. The grader must be written down to this amount.

Step 3: Calculate and Record the Impairment Loss

The write-down is recognized as an impairment loss in the surplus or deficit for the period.

• Impairment Loss: Carrying Amount – (Fair Value Less Costs to Sell)
  • Ksh 8,400,000 – Ksh 7,800,000 = Ksh 600,000

Journal Entry (at June 30, 2025):

• Dr Impairment Loss (Surplus/Deficit) Ksh 600,000
• Dr Non-Current Asset Held for Sale Ksh 7,800,000
• Dr Accumulated Depreciation Ksh 3,600,000
• Cr Property, Plant, and Equipment (Grader) Ksh 12,000,000 (To reclassify the grader as held for sale and recognize the impairment loss)

Step 4: Subsequent Accounting Treatment

• No More Depreciation: Once the asset is classified as held for sale, depreciation ceases immediately.
• Presentation: On the Statement of Financial Position as at June 30, 2025, the grader will be presented separately under a line item such as “Non-Current Assets Held for Sale” with a value of Ksh 7,800,000.