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The old mixing machine will be classified as a NCA held for sale as of the end of October when reconditioning is completed and it is ready for sale in its present condition. Therefore, it will be a NCA Held for Sale at 31 December 2025. It will be measured at its fair value less costs to sell. In this case, that is K$25000 - K$2300.

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As Halfpenny are ceasing to use the mixing machine and will be looking to sell after it has been reconditioned due to the new mixing machine which is going to be installed. Under IAS16: Non-current assets held for sale, the mxing machine will defined as a NCA Held for sale after it has been reconditioned at the end of October 2025. Once the asset has been recognised as this, it will no longer be depreciated and will be held at the lower of its carrying amount or fair value less costs to sell. In this case, it will be the Carrying amount of K$21,400 minus a moths depreciation whilst the asset is being reconditioned. This is because the fair value less costs to sell equates to K$22700 which is the fair value of K$25000 minus the reconditioning cost of K$2300.

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HP will classify the old mixing machine as NCA Held for sale once it has been reconditioned at the end of October and the machines condition is ready for sale. The machine will then be moved from NCA to a subheading in the financial statements of NCA Held for sale and the depreciation of the asset will end. This is under IAS 16 standards.

HP will measure the mixing machine as the carrying value of 21400 less any costs to sell which will be the reconditioning costs of 2300.

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Classification and Measurement of the Old Mixing Machine 

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Classification and Measurement of the Old Mixing Machine 

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The old mixing machine for Halfpenny falls into the category of a Non Current Asset Held for Sale  it fits the criteria of being able to be sold from the end of October after it has been reconditioned and that it is probable that it will sell within six months so within the year and that it is no longer in use.

The asset will need to be recorded as a NCA at either the lower of the value of its carrying amount which will be £21,400 minus a months depreciation until asset is ready to be sold or the Fair value less costs to sell so £25,000 minus the £2,300 if the fair value is lower than the carrying amount we need to record this as an expense to Halfpennys financial statements.

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When looking at these items, we need to consider the classification of them for our financial statements. Regarding the mixing machine, we are intending to sell the item and therefore we need to consider whether we classify it as an asset held for sale. For the asset to be classified as such, we must be actively looking to sell the item which we are. We must expect the item to sell in the near future (typically less than 12 months), which we have said 6 months. And also, the asset must be immediately ready for sale, which in this case it is not until it has been reconditioned. Therefore, we would need to continue to depreciate the item up until the end of October, then it would meet the requirements of asset held for sale. We would then need to value it at the lower of carrying amount of fair value less costs. the carrying amout will be 21,400 minus an extra months depreciation. Fair value less cost to sell will be 25,000 less 2,300

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The mixing machine will be classified as as NCA HFS as it meets the following criteria: The probability of the sale is high and the sale is expected to take 6 months which is less than the 12 months stated in the IFRS 5 standard. This would be shown in a sub category under NCA clearly labelled as HFS. The valuation of this at the year ended December 2025 would be lower of the Market value, in this case $K25,000, and the Fair Value less Cost to sell which would be $K22,700. This means that the shown in the SFP under NCA HFS for the value would be $K22,700. To go alongside this, as the asset is no longer in use, all remaining depreciation would have to be written off to the SPL on 1 October 2025.

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IFRS 5 - Non-current assets held for sale

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IFRS 5 - Non-current assets held for sale

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When considering the classification of assets that are being replaced, we look at IFRS 5 - non current assets held for sale. This financial reporting standard allows companies to reclassify non-current assets to a non-current asset held for sale (which is a subheading under current assets). To classify a NCA as a NCA held for sale they are specific criterions that need to be met. For example, the asset has to be readily available for sale, the sale is expected within 12 months and the sale of the asset is realistic. In the instance of the old mixing machine, this asset would be reclassified as a NCA held for sale once the reconditioning is complete (as this means it is readily available for sale). It is stated in the table that there is a good second hand market for these assets which means that the sale is realistic and expected to happen. It is also mentioned that it may take up to 6 months to find a buyer which is within the time limitations of the criteria of NCA held for sale classification therefore this asset would be reclassified. IFRS 5 NCAs held for sale measures the value of the asset at the lower of the carrying amount or fair value less costs to sell. The old mixing machine's carrying amount of K$21,400 is lower than the fair value less costs to sell of K$22,700 and therefore the asset would be measured at K$21,400 when reclassified.

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I think that the old weighing scale will not yet be classified as a NCA Held for Sale at 31 December 2025, as we do not intend to sell it for another 2 years. Indeed, it does not meet the conditions for sale stated in IFRS 5. It will be valued at its carrying amount at 1 August 2025, less any depreciation (so K$2329?), as per IAS16 PPE.

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Mixing Machine

A non current asset held for sale is classified under IFRS 5 as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continued use. It must meet certain criteria such as that it is available for immediate sale in its present condition and the sale is highly probable.

By the end of October 2025, the asset will be ready to be classified as a non-current asset held for sale. the sale is highly probable, and will be completed under the year required. Management have committed to selling the asset and its unlikely the plan will change. It will be valued in the financial statements as the lower of the carrying amount and the fair value less costs of disposal. Carrying amount would be 21,400 and we also need to account for a months depreciation, which is until its a condition to sale. the fair value would be 22700. therefore the CA would be lower so we would value at CA.

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As HP will be keeping the weighing scale as back up the asset is still in working order and available to HP therefore HP will still classify the asset as a NCA and will be treated as such in relation to depreciation over the useful life of the asset that was originally assessed and the amount the asset will be held for in the financial statements will be 2600 under IFRS 16 Property Plant and Equipment.

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This asset will not be classified as an asset held for sale under IFRS 5. We have already replaced the asset, and we plan to hold this item for a period of time as a backup. There is no indication of attempting to sell. Therefore we will value this item at its carrying amount of 2,600, and depreciate it across its remaining useful life with whatever current depreciation method we are using per IAS 16 PPE.

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Classification:

The old mixing machine will be classified as an asset held for sale as per IFRS 5. The asset can be classified as held for sale when it meets the relevant criteria including, actively seeking a buyer, ready for sale in present condition, expected to be sold in 12 months and marketed at a reasonable price. The asset meets these criteria as Halfpenny expect to find a buyer within 6 months, the expected price of the sale of asset is reasonable as it is in line with the carrying amount. However the asset will only be ready for sale once the reconditioning has taken place, therefore Halfpenny can reclassify the asset at the end of October after the reconditioning.

Measurement:

The asset has an expected carrying amount of $21,400 at the start of October, depreciation will no longer be charged once the asset is held for sale, however if this is not until the end of October we may need to deduct an additional month depreciation from the carrying amount. The value in which it is held for sale will be the lower of carrying amount and fair value less costs to sell. Once a sale is made Halfpenny will need to remove the asset as held for sale and any profit or loss made on the sale will need to be recorded in the profit or loss.

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IFRS 5 states that assets will be treated as held for sale is they are available for immediate sale in their current condition, and that the sale will be highly likely. A sale will be highly likely if; the asset is actively marketed for sale at a reasonable price, management are committed to selling the asset, and if the sale is expected to complete within a year.

The old mixing machine will be classified as an NCA Asset Held for Sale at year end 31/12/25.

The reconditioning will complete in October, so at year end it will be available for immediate sale.

The plans to recondition in the next quarter do allude that management are committed to selling the mixing machine, however we’d need to ensure the machine is actively marketed for sale also.

As there is a good second-hand market, the expected proceeds of $25,000 are above the CA of $21,400 so Halfpenny are likely to market and complete sale for a reasonable price that doesn’t undercut their book value and result in a disposal loss. The good second-hand market also means that the expected timeframe to sell of 6 months is well within the required 1-year timeframe.

Measurement:

NCA Held for Sale are measured at the lower of their carrying amount and their fair value less costs to sell.

Our expected proceeds of $25,000 less the $2,300 costs of reconditioning the mixing machine result in a fair value less costs to sell of $22,700.

Given that our carrying amount of $21,400 is less than the fair value, we would measure the value in our SFP at $21,400.

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The mixing machine will ne classified as IFRS 5 NCS held for sale in the FS at year end. It will be valued at the lower of the Fair Value less costs v The carrying amount, In this case it will be valued at the lower of $21,400 less another months depreciation or $25,000 - $2,300. If the fair value is less than the carrying amount it will be charged as an impairment in the p&l.

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In accordance with IFRS5, Halfpenny will classify the Old Mixing Machine as a Non-Current Asset. The reasoning for this is the asset will no longer be non-current because the mixing machine will be sold within the next 12 months. In terms of accounting treatment, there will need to be one further month of depreciation to charge to the profit and loss as this will be once the asset is ready for sale. The carrying amount will also need to be restated to the Fair Value less cost to sell which will be 25,000 less 2,300 (22,700). the difference in the current carrying amount and revalued amount will need to be expensed to the profit and loss.

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Classification and Measurement of the Old Weighing Scale

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Classification and Measurement of the Old Weighing Scale

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The old weighing scale does not fit the criteria as an asset held for sale as it is still stored to be used if required by half penny this could be in the event of a breakdown in the other scales or if production rises significantly and we need an additional back up. We need to look at if this asset needs impaired due to us purchasing a new asset.

We need to look at whether IAS 36 impairment is required, the carrying amount of this scale is £2600 however the market value for this currently would be in the region of £3150 therefore no impairment is required however based on IAS16 we still need to depreciate this scale as it is still an item of PPE that is fit for use

The depreciation policy will need to change for halfpenny as it is advised we will hold this asset for 2 years whereas there is a 4 years useful life on it currently.

The asset will be relifed and depreciated over the next two years which will accelerate our depreciation

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The weighing scale would not be classified under IFRS 5 as a non-current asset held for sale. Whilst the weighing scale meets certain criteria like that it is available to for immediate sale in its present condition, it does not meet other criteria. The likelihood of a highly probable sale is unlikely. Management are currently still using the weighing scale as a back up, and have not committed to a plan to sell the asset. Furthermore, as it is being used as a back up, plans might change quickly, if something goes wrong with the new weighing scale then it is likely Halfpenny will use the old weighing scales in an emergency.

There also isn’t a programme that has been undertaken to locate a buyer, even though there still a long useful like of the asset.

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The initial recognition of the new lease as per IFRS 16 shows we need to record the ROU Asset and the Lease Liability so that we have our Values correctly stated.

The ROU asset should also include the Lease arrangement fee which was before the lease commencement date. And also the initial payment made on the 1st of July as this lease is paid in advance plus any other lease payments required (7*£30k)

The lease liability will be made up of the remaining payments due 7 times £30k plus the 10% interest rate implicit to the lease.

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The old weighing scale will be classified as need to be classified as an impairment under IAS 36. This is shown when the CA is lower than the Market value. CA being $k2,600 and the MV being $3,150. This means that shown in Halfpenny's financial statements ended December 2025 would be the $K2,600 with the impairment of $k550 being written off to the SPL.

To go alongside this the depreciation policy would have to be reviewed as the useful life of the asset has decreased from 4 to 2 years from 1 August 2025. Therefore shown in the financial statements for Ye Dec 2025 would be the revalued deprecation amount.

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The lease is commencing on the 1st of July, and that is also when our first payment is. We will recognise this lease in our ROU lease accounts as the total payables unpaid. This will be the 30,000 payment, across 7 years that are unpaid, plus any other costs to set up the arrangement (4,000)

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Due to the old weighing scale being kept in storage as a backup if the new version that has been installed requires maintenance or is not available for use, it would not meet the relevant criteria under IFRS5: NCA Held for sale. Therefore, under IAS16: Plant, Property and Equipment, it will be held as a Non-current Asset. There will be no impairment recorded in the financial statements as the fair market value of the scale is K$3150 with the carrying amount being K$2600. However, as HalfPenny have previosuly estimated he useful life to be 4 years and will now only be in possession of the item for 2 years, they must change the revaluation rate to be in line with IAS16 which would make the annual depreciation charge to the SoPL for the scale K$1300 rather than the current charge of K$650.

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In accordance to IFRS5, Halfpenny will be able to revalue the weighing scale as the current carrying amount is 2,600 with a potential residual value of 3,150 and depreciate the asset over 2 years rather than 4 as per Halfpenny's plan for the asset. The weighing scale would not currently be a current asset held for sale as HP plan to sell the asset in 2 years.

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The old weighing scale does not qualify under the parameters of IFRS 5 and therefore will be classed as a Non-Current Asset. 

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The old weighing scale does not qualify under the parameters of IFRS 5 and therefore will be classed as a Non-Current Asset. 

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Management’s intention is to keep the weighing scale as back-up and keep it in storage for at least another 2 years. Given this explicit lack of intent to sell, it will be classified as any other asset available for use.

Measurement:

Assuming no costs to sell, if we compare the carrying value of $2,600 with the higher fair value of $3,150, we can see that the scales haven’t been impaired and therefore no adjustment is needed in this respect.

We would need to calculate the depreciation charges for the remainder of the financial period. Since the remaining useful life of 4 years is based on its original assessment at purchase, we should amend this for the next 2 years of its intended useful life. The resulting deprecation charge of $542 for August-December will be taken off it’s current carrying value and will be recorded as $2,058 at year end.

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Under IFRS 16 HP will be initially recording the lease under the ROU of the asset and the lease liability.

The ROU asset will be calculated as any lease arrangement fees/any pre arrange payments and the remaining lease payments due, in HP case this will be 244k.

The lease liability will be recorded as the remaining lease payments of 210k plus the annual interest of 10%.

As the ownership of the asset at the end of lease will transfer over to us we will depreciate the asset over the useful life on the asset being 10 years instead of the lease term of 8.

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The subsequent measurement of the new lease as per IAS 16 shows we need to depreciate the asset over the useful life, this would normally be over the shorter of the lease term however it states that we will have ownership at the end of the lease therefore we can depreciate over the 10 years instead of the 8 shown in the lease.

The packing equipment is in use from the 1st of August so this shows that the depreciation for 2025 will be 5 months

The lease liability will be split into a non current liability and a current liability this will clearly show the liability required for the year end and then going forward for our SOFP, we need to ensure there is 6 months lease liability in our current liability for 2025 as the lease commenced on 1st July