Buyer search, reasonable price and stable plan

Learning objectives

• Analyse the factors used to assess probability: management commitment, an active programme to locate a buyer, a reasonable price, and an unlikely change to the plan.L2, L3

Normative references

• IFRS 5 §8Highly probable sale: management at the appropriate level is committed to a plan, an active programme to locate a buyer has been initiated, the asset is actively marketed at a price that is reasonable in relation to its current fair value, the sale is expected to be completed within one year from classification (except as permitted by para. 9), and significant changes to the plan or its withdrawal are unlikely; the probability of shareholders' approval is considered.

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

2 questions

• Brenan has offered a plant for sale for several months at a price far above any reasonable estimate of its fair value, and no offer has come in. Case assumption: the other elements of the plan are in place. Which conclusion is consistent with the price criterion?L2
• The Mervil group has instructed an intermediary to find a buyer for its logistics subsidiary. The board approved the plan, contacts have taken place with several candidates, the asking price is close to an independent estimate of fair value, but the main shareholder privately mentions a possible withdrawal if the market recovers. Write a note assessing whether the plan supports a conclusion that the sale is highly probable.L3