Russia: Future changes in the Accounting Standard 16\02 Information about activities to be discontinued

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published on 19 February 2020 | reading time approx. 3 minutes

 

The changes introduced by the standard must be applied to reporting periods from 2020. However, an earlier implementation of the requirements is also possible.


How will this new version of the standard differ from the previous one?

 


Scope of application

From 2022 this standard must be applied also by non-commercial organisations. The only exception are state and municipal institutions. The guideline on the application of the accounting standard for the preparation of the consolidated financial statements has also been deleted.

 

New provisions and definitions

Introduction of the term “non-current assets held for sale” (in Russian: “dolgo­srotschny aktiv k prodazhe”)

Non-current assets held for sale are property, plant and equipment or other fixed assets (with the exception of financial assets) whose use is discontinued based on a resolution on their sale if there is evidence that these assets will no longer be used in the future. Such evidence can be the resolution of the management board, taking preparatory measures for the sale of an asset or the sales agreement.


Non-current assets held for sale also include tangible assets held for sale which remain after the depreciation of fixed assets or which were received during ongoing maintenance, repair, modernisation or reconstruction. Exceptions are assets which were classified as inventories.´Fixed assets whose use has been temporarily suspended for any reason whatsoever are not included in non-current assets held for sale.


Introduction of the term “provision” (ozenotschnoje objasatelstwo) instead of “reserves” (reserv)

If the activity of an organisation is deemed to be about to be discontinued, liabilities will normally arise as a result of legal provisions, contractual terms and conditions or voluntary commitments taken on by the organisation towards natural and legal persons whose interests are affected by the discontinuation of the activity.


According to the amendments introduced by sec. 8 of the Accounting Standard 16/02, the organisation must make a provision, instead of a reserve, to recognise such obligations. Please be also informed that provisions are made and measured in line with the Accounting Standard 8/2010 “Provisions, contingent claims and liabilities”.

 

Non-current assets held for sale are disclosed separately from other assets classified as current assets. At the reclassification date, non-current assets are measured at the (residual) value of the property, plant and equipment or another fixed asset whose use is discontinued based on the resolution on their sale. After reclassification, the measurement methods applicable to inventories are applied to this asset item.


At the same time, the Ministry of Finance of Russia in its information letter of 9 July 2019 explained some special aspects of the disclosure. Thus, if the price of the non-current asset is reduced at the end of the reporting period, an impairment loss is recognised in connection with the impairment. At the end of every reporting period, the asset is tested for impairment or increase in value in the subsequent reporting period. The price of the asset is recognised in the books of account after deducting the impairment write-down.

 

Disclosure in the books of account and explanations in the explanatory note

The explanatory note must provide information about the activity to be discontinued. According to the new provisions, the activity to be discontinued may be operationally and/or functionally separated for the purposes of preparing the financial statements, as long as assets, liabilities, income and expenses of the organisation from its ordinary course of business (or the major part of it) are directly related or directly attributable to the activity to be discontinued.


Disclosures on the activity to be discontinued must be presented for reporting periods at the start of which the declaration on discontinuation of activity is filed and at the end of which settlements concerning the receipt of income are settled and obligations from this activity are fulfilled.


If the activity was declared to be discontinued after the end of the annual reporting period but before signing the organisation's financial statements, appropriate indicators for the period covered by those financial statements should be adjusted in those financial statements. The consequences of declaring the activity as 'to be discontinued' (disclosure of provisions, impairment of assets and losses arising from such impairment) are accounted for in accordance with the procedure laid down for the disclosure of transactions after the reporting date.

 

In addition, the following information on non-current assets should also be disclosed:

  • Description of the assets;
  • Description of the sales transactions and their circumstances and the expected method and period of sale;
  • Profits from (losses on) these assets and items in the income statement in which these profits (losses) are included (except for special cases where income or losses are disclosed in the income statement);
  • If disclosures are made on a segment by segment basis: the segment to which the given indicators are attributable.
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