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TaxTMI 
TaxTMI 
TaxTMI 
Discontinuing Operations
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....ns Discontinuing Operation 3. A discontinuing operation is a component of an enterprise: (a) that the enterprise, pursuant to a single plan, is: (i) disposing of substantially in its entirety, such as by selling the component in a single transaction or by demerger or spin-off of ownership of the component to the enterprise's shareholders; or (ii) disposing of piecemeal, such as by selling off the component's assets and settling its liabilities individually; or (iii) terminating through abandonment; and (b) that represents a separate major line of business or geographical area of operations; and (c) that can be distinguished operationally and for financ....
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....ances, include: (a) gradual or evolutionary phasing out of a product line or class of service; (b) discontinuing, even if relatively abruptly, several products within an ongoing line of business; (c) shifting of some production or marketing activities for a particular line of business from one location to another; and (d) closing of a facility to achieve productivity improvements or other cost savings. An example in relation to consolidated financial statements is selling a subsidiary whose activities are similar to those of the parent or other subsidiaries. 10. A reportable business segment or geographical segment as defined in Accounting Standard (AS) 17, Segment Reporting, would normally satisfy criterion (b) of the definition of a discontinuing operation (paragraph 3), that is, it would represent a separate major line of business or geographical area of operations. A part of such a segment may also satisfy criterion (b) of the definition. For an enterprise that ....
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....rning body has both (i) approved a detailed, formal plan for the discontinuance and (ii) made an announcement of the plan. 16. A detailed, formal plan for the discontinuance normally includes: (a) identification of the major assets to be disposed of; (b) the expected method of disposal; (c) the period expected to be required for completion of the disposal; (d) the principal locations affected; (e) the location, function, and approximate number of employees who will be compensated for terminating their services; and (f) the estimated proceeds or salvage to be realised by disposal. 17. An enterprise's board of directors or similar governing body is considered to have made the announcement of a detailed, formal plan for discontinuance, if it has announced the main features of the plan to those affected by it, such as, lenders, stock exchanges, creditors, ....
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.... (h) the amounts of net cash flows attributable to the operating, investing, and financing activities of the discontinuing operation during the current financial reporting period. 21. For the purpose of presentation and disclosures required by this Standard, the items of assets, liabilities, revenues, expenses, gains, losses, and cash flows can be attributed to a discontinuing operation only if they will be disposed of, settled, reduced, or eliminated when the discontinuance is completed. To the extent that such items continue after completion of the discontinuance, they are not allocated to the discontinuing operation. For example, salary of the continuing staff of a discontinuing operation. 22. If an initial disclosure event occurs between the balance sheet date and the date on which the financial statements for that period are approved by the board of directors in the case of a company or by the corresponding approving authority in the case of any other enterprise, disclosures as required by Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, are made. Other Disclosures 23. When an enterprise disposes o....
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....als. 28. The disclosures required by paragraphs 20, 23 and 26 should continue in financial statements for periods up to and including the period in which the discontinuance is completed. A discontinuance is completed when the plan is substantially completed or abandoned, though full payments from the buyer(s) may not yet have been received. 29. If an enterprise abandons or withdraws from a plan that was previously reported as a discontinuing operation, that fact, reasons therefor and its effect should be disclosed. 30. For the purpose of applying paragraph 29, disclosure of the effect includes reversal of any prior impairment loss^[3] or provision that was recognised with respect to the discontinuing operation. Separate Disclosure for Each Discontinuing Operation 31. Any disclosures required by this Standard should be presented separately for each discontinuing operation. Presentation of the Required Disclosures 32. The disclosures required by paragraphs 20, 23, 26, 28, 29 and 31 should be presented in the notes to the financial statements except the following which should be shown on the face of the statement of profit and loss: &nbs....
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....of Directors of Delta Company approved a detailed, formal plan for disposal of Clothing Division, and an announcement was made. On that date, the carrying amount of the Clothing Division's net assets was Rs. 90 lakhs (assets of Rs. 105 lakhs minus liabilities of Rs. 15 lakhs). u The recoverable amount of the assets carried at Rs. 105 lakhs was estimated to be Rs. 85 lakhs and the Company had concluded that a pre-tax impairment loss of Rs. 20 lakhs should be recognised. u At 31 December 20X1, the carrying amount of the Clothing Division's net assets was Rs. 70 lakhs (assets of Rs. 85 lakhs minus liabilities of Rs. 15 lakhs). There was no further impairment of assets between 15 November 20X1 and 31 December 20X1 when the financial statements were prepared. u On 30 September 20X2, the carrying amount of the net assets of the Clothing Division continued to be Rs. 70 lakhs. On that day, Delta Company signed a legally binding contract to sell the Clothing Division. &....
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....ns before tax (see Note 5) (2) 13 Income tax expense 1 (7) Profit (loss) from discontinuing operations after tax (1) 6 Profit from operating activities after tax 7 12 1.2 Note to Financial Statements for 20X1 The following is Note 5 to Delta Company's financial statements: On 15 November 20X1, the Board of Directors announced a plan to dispose of Company's Clothing Division, which is also a separate segment as per AS17, Segment Reporting. The disposal is consistent with the Company's long-term strategy to focus its activities in the areas of food and beverage manufacture and distribution, and to divest unrelated activities. The Company is actively seeking a buyer for the Clothing Division and hopes to complete the sale by the end of 20X2. At 31 December 20X1, the carrying amount of the assets of the Clothing Division was Rs. 85 lakhs (previous year Rs. 120 lakhs) and its liabilities were Rs. 15 lakhs (previous year Rs. 20 lakhs). The f....
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....x (11) 7 2.2 Note to Financial Statements for 20X2 The following is Note 5 to Delta Company's financial statements: On 15 November 20X1, the Board of Directors had announced a plan to dispose of Company's Clothing Division, which is also a separate segment as per AS17, Segment Reporting. The disposal is consistent with the Company's long-term strategy to focus its activities in the areas of food and beverage manufacture and distribution, and to divest unrelated activities. On 30 September 20X2, the Company signed a contract to sell the Clothing Division to Z Corporation for Rs. 60 lakhs. Clothing Division's assets are written down by Rs. 10 lakhs (previous year Rs. 20 lakhs) before income tax saving of Rs. 3 lakhs (previous year Rs. 6 lakhs) to their recoverable amount. The Company has recognised provision for termination benefits of Rs. 30 lakhs (previous year Rs. nil) before income-tax saving of Rs. 9 lakhs (previous year Rs. nil) to be paid by 30 June 20X3 to certain employees of the Clothing Division whose jobs will be terminated as a result of the sale. At December 20X2, the carrying amount of assets of the Clothing Division was Rs. ....
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.... (a) Operations A, B, C, and D were all continuing in years 1 and 2; (b) Operation D is approved and announced for disposal in year 3 but actually disposed of in year 4; (c) Operation B is discontinued in year 4 (approved and announced for disposal and actually disposed of) and operation E is acquired; and (d) Operation F is acquired in year 5. 3. The following table illustrates the classification of continuing and discontinuing operations in years 3 to 5: FINANCIAL STATEMENTS FOR YEAR 3 (Approved and Published early in Year 4) Year 2 Comparatives Year 3 Continuing Discontinuing Continuing Discontinuing A A B B C C ....