ASSETS HELD FOR SALE Meaning and
Definition
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Assets held for sale refers to a classification in accounting that represents assets that a company intends to sell within a short period, typically within one year of the balance sheet date. These assets are not intended for continued use in the company's operations but instead are held for the purpose of generating cash flows by disposing of them.
To be classified as assets held for sale, certain criteria must be met. First, the assets must be available for immediate sale in their present condition, subject only to usual terms and conditions for selling such assets. Second, the company must have a committed plan to sell the assets, which is supported by actions taken to actively market and obtain a buyer. This plan should be reasonable, and it should be unlikely that significant changes will be made to it or that the assets will be withdrawn from sale. Furthermore, the assets must be actively marketed at a price that is reasonable given the current market conditions.
When assets are reclassified as held for sale, they are no longer reported as part of the company's continuing operations. Instead, they are reported separately on the balance sheet at the lower of their carrying amount or fair value less costs to sell. Any loss resulting from the reclassification is recognized immediately in the income statement.
The classification of assets held for sale is important for financial statement users, as it provides insights into the company's strategy to divest non-core or non-performing assets and generate cash.
