How should properties held for sale be measured and classified in the balance sheet?

• A. Measured at historical cost and classified as long-term assets.
• B. Measured at market value only; classified as non-current assets.
• C. Measured at the lower of cost and net realizable value and classified as current assets (inventory) intended for sale.
• D. Measured at replacement cost; classified as fixed assets.

Answer: (C)

When an asset is classified as held for sale, it is being prepared for sale in the ordinary course and is shown as a current asset rather than a long-term one. The measurement should reflect the amount expected to be recovered from selling it, which means comparing its carrying amount to the amount that can be realized from sale after subtracting costs to sell. In practice, this is the lower of the asset’s carrying amount and its recoverable amount, where recoverable amount for held-for-sale assets is typically represented by fair value less costs to sell (often aligned with net realizable value: estimated selling price minus costs to complete and selling costs). If the asset’s NRV is below cost, a write-down is recognized to bring the carrying amount down to NRV, ensuring the balance sheet does not overstate what will be received from sale. Once classified as held for sale, depreciation or amortization ceases because the asset is no longer used in operations. The correct choice reflects this: measurement at the lower of cost and net realizable value and classification as a current asset intended for sale. The other options misstate either the measurement basis (historical cost, market cost, or replacement cost) or the classification (non-current or fixed assets), which doesn’t align with how held-for-sale properties are reported.