How should an asset reclassified to held for sale be valued according to IFRS 5?

When an asset is reclassified as held for sale, it must be valued according to the guidelines set out in IFRS 5, which specifically dictates that the asset should be measured at the lower of its carrying amount and fair value less costs to sell. This approach is designed to ensure that assets are not overvalued on the balance sheet, reflecting their expected recoverable amount in the context of immediate disposal.

Valuing the asset at the lower of these two amounts (carrying amount versus fair value minus costs to sell) serves to provide a realistic estimate of the asset’s recoverable value in the market. This means that if the market conditions suggest that the asset can only be sold for a price that’s less than the accounting value after considering the selling costs (like commissions or fees), the asset should be written down to this lower figure. The aim is also to prompt companies to act promptly on sales, reflecting an urgency that aligns with the asset being classified as held for sale.

This specific measurement approach encourages more accurate financial reporting and provides users of financial statements with relevant information regarding the current value of assets that are being positioned for sale, as opposed to simply reporting historical costs or original purchase prices, which may not reflect current market conditions or realizable