Fair value less costs of disposal

Learning objectives

• Identify the deductible costs of disposal (legal costs, duties, removal costs, costs of bringing the asset into condition for sale) and those excluded (costs already recognised as liabilities, termination benefits on restructuring, finance costs).L1, L2
• Calculate fair value less costs of disposal, including where there is no quoted price, by reference to IFRS 13 for fair value.L2, L3

Normative references

• IAS 36 §20States that fair value less costs of disposal can often be measured even if there is no quoted price in an active market for an identical asset; when there is no basis for making a reliable estimate of the price of an orderly transaction between market participants, the entity may use value in use as the recoverable amount.
• IAS 36 §28Specifies that only costs of disposal not already recognised as liabilities are deducted (legal costs, stamp duty and similar transaction taxes, costs of removing the asset, direct incremental costs to bring the asset into condition for its sale); termination benefits and costs associated with reorganising a business following the disposal are not costs of disposal.
• IAS 36 §29When the disposal requires the buyer to assume a liability and only a single fair value less costs of disposal is available for the whole, refers to the treatment in paragraph 78.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

12 questions

• True or false? To obtain the fair value less costs of disposal of a machine, the entity deducts, among other things, the legal fees of the sale, the duties and taxes on the transaction and the cost of removing the machine, provided these costs are not already recognised as liabilities.L1
• True or false? When a company sells a workshop, the termination benefits it will pay to employees and the costs of reorganising its other sites after the disposal are costs of disposal to be deducted from the fair value of the workshop.L1
• Valmont plans to sell an industrial press. Which of the following costs is a cost of disposal to be deducted from the fair value of the press?L1
• Kestral holds a cold-storage warehouse. There is no quoted price in an active market for an identical warehouse. Which statement is correct?L2
• Embrun is disposing of a bottling line. Which of the following costs are costs of disposal to be deducted in determining fair value less costs of disposal? (several answers)L2
• Brévalle is considering selling a packaging line. Its fair value, determined under IFRS 13, is {fair_value} (given). The sale would involve {legal_fees} of legal fees, {transfer_taxes} of taxes on the transaction and {removal_costs} for dismantling and removing the line. Brévalle would also pay {severance_pay} of termination benefits to the operators after the disposal. None of these costs is recognised as a liability. What is the fair value less costs of disposal?L2
• Hydrostal, a power plant operator, is putting a standby turbine up for sale; its fair value under IFRS 13 is {fair_value} (given). To complete the deal, it will have to pay {transaction_tax} of transfer duties, pay {legal_fees} to a law firm and incur {preparation_costs} of overhaul directly needed to deliver the turbine in saleable condition. An expert report on the turbine, invoiced {recognised_expert_fee}, is already included in trade payables. Finally, Hydrostal plans {reorganisation_costs} of reorganisation of its teams after the sale. Calculate the fair value less costs of disposal.L2
• At the year-end, Corvane tests a laser-cutting machine with a carrying amount of {carrying_amount}. Its fair value (IFRS 13, given) is {fair_value}. A sale would involve {legal_fees} of legal costs and {removal_costs} of removal; Corvane also estimates at {reorganisation_costs} the reorganisation of its workshop that would follow the disposal. None of these costs is recognised as a liability. Value in use, calculated separately, is {value_in_use}. Determine the fair value less costs of disposal, the recoverable amount and the impairment loss.L3
• Aubrac Logistique owns a fleet of order-picking robots carried at {carrying_amount}. An independent valuer sets its fair value under IFRS 13 at {fair_value} (given), which is more than the carrying amount. However, disposing of the fleet would cost {stamp_duty} of stamp duty, {legal_fees} of lawyer's fees and {preparation_costs} of refurbishment directly required for the sale. A dismantling adviser has already invoiced {recognised_consultant_fee}, an amount recognised as a payable at the year-end. Value in use is {value_in_use}. What are the fair value less costs of disposal, the recoverable amount and any impairment loss?L3
• Selvane is putting a business plot of land up for sale; its fair value, determined under IFRS 13, is 900,000 (given). The notary has already drafted the preliminary agreement: the fees of 15,000 were invoiced and recognised as a trade payable before the year-end. Transaction taxes, i.e. 20,000, will only be due when the final deed is signed and are not yet recognised. What fair value less costs of disposal should Selvane use at the year-end?L2
• Orbelis, an aerospace equipment manufacturer, built a unique test bench for its own needs, which shows indications of impairment. No transaction on comparable equipment can be observed and the valuer consulted states that there is no reliable basis for estimating the price at which an orderly transaction between market participants would take place. The carrying amount of the bench is 400,000 and its value in use is 340,000. What should Orbelis do?L3
• Ferrandes operates a quarry that forms a cash-generating unit (CGU). The carrying amount of the CGU's assets is 1,000,000. A provision for site restoration is recognised at 400,000; any buyer of the quarry would have to assume this obligation. A firm offer covers the assets and the obligation together: the fair value less costs of disposal of this package is 520,000. The value in use of the assets, before taking the restoration obligation into account, is 560,000. What is the impairment loss of the CGU?L3