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.

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.

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.

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.

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. 

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

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.

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 1^st 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.

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.

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.

The packing equipment is in use from the 1^st 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 1^st July

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.