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Discontinuing Operations
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....tions 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 financial reporting purposes. 4. Under criterion (a) of the definition (paragraph 3 (a)), a discontinuing operation may be disposed of in its entirety or piecemeal, but always pursuant to an overall plan to discontinue the entire component. 5. If an enterprise sells a component substantially in its entirety, the result can be a net gain or net loss. For such a discontinuance, a binding sale agreement is entered into on a specific date, although the actual transfer ....
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....onsolidated 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 operates in a single business or geographical segment and therefore does not report segment information, a major product or service line may also satisfy the criteria of the definition. 11. A component can be distinguished operationally and for financial reporting purposes - criterion (c) of the definition of a discontinuing operation (paragraph 3) - if all the following conditions are met: (a) the operating assets and liabilities of the component can be directly attributed to it; (b) its revenue can be directly attributed to it; (c) at least a majority of its operating expenses can be directly attributed to it. ....
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....cted by it, such as, lenders, stock exchanges, creditors, trade unions, etc., in a sufficiently specific manner so as to make the enterprise demonstrably committed to the discontinuance. Recognition and Measurement 18. An enterprise should apply the principles of recognition and measurement that are set out in other Accounting Standards for the purpose of deciding as to when and how to recognise and measure the changes in assets and liabilities and the revenue, expenses, gains, losses and cash flows relating to a discontinuing operation. 19. This Standard does not establish any recognition and measurement principles. Rather, it requires that an enterprise follow recognition and measurement principles established in other Accounting Standards, e.g., Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date^[1] and Accounting Standard (AS) 28, Impairment of Assets. Presentation and Disclosure Initial Disclosure 20. An enterprise should include the following information relating to a discontinuing operation in its financial statements beginning with the financial statements for the period in which the initial disclosure event (as def....
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....gain or loss that is recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation, (i) the amount of the pre-tax gain or loss and (ii) income tax expense relating to the gain or loss; and (b) the net selling price or range of prices (which is after deducting expected disposal costs) of those net assets for which the enterprise has entered into one or more binding sale agreements, the expected timing of receipt of those cash flows and the carrying amount of those net assets on the balance sheet date. 24. The asset disposals, liability settlements, and binding sale agreements referred to in the preceding paragraph may occur concurrently with the initial disclosure event, or in the period in which the initial disclosure event occurs, or in a later period. 25. If some of the assets attributable to a discontinuing operation have actually been sold or are the subject of one or more binding sale agreements entered into between the balance sheet date and the date on which the financial statements are approved by the board of directors in case of a company or by the corresponding approving authority in the case of any other ent....
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....ntinuing operation (paragraph 23 (a)). Illustrative Presentation and Disclosures 33. Illustration 1 attached to the Standard illustrates the presentation and disclosures required by this Standard. Restatement of Prior Periods 34. Comparative information for prior periods that is presented in financial statements prepared after the initial disclosure event should be restated to segregate assets, liabilities, revenue, expenses, and cash flows of continuing and discontinuing operations in a manner similar to that required by paragraphs 20, 23, 26, 28, 29, 31 and 32. 35. Illustration 2 attached to this Standard illustrates application of paragraph 34. Disclosure in Interim Financial Reports 36. Disclosures in an interim financial report in respect of a discontinuing operation should be made in accordance with AS 25, Interim Financial Reporting, including: (a) any significant activities or events since the end of the most recent annual reporting period relating to a discontinuing operation; and (b) any significant changes in the amount or timing of cash flows relating to the assets to be disposed or liabilities to be settled. Illustration 1 I....
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....al statements annually as of 31 December. It does not prepare a cash flow statement. • Other figures in the following financial statements are assumed to illustrate the presentation and disclosures required by the Standard. 1. Financial Statements for 20X1 1.1 Statement of Profit and Loss for 20X1 The Statement of Profit and Loss of Delta Company for the year 20X1 can be presented as follows: (Amount in Rs. lakhs) 20X1 20X0 Turnover 140 150 Operating expenses (92) (105) Impairment loss (20) (---) Pre-tax profit from operating activities 28 45 Interest expense (15) (20) Profit before tax 13 25 Profit from continuing operations before tax 15 12 (see Note 5) Income tax expense (7) (6) Profit from continuing operations after tax 8 6 Profit (loss) from discontinuing operations (2) 13 before tax (s....
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....(30) -- Pre-tax profit from operating activities 10 28 Interest expense (25) (15) Profit (loss) before tax (15) 13 Profit from continuing operations before tax (see Note 5) 20 15 Income tax expense (6) (7) Profit from continuing operations after tax 14 8 Loss from discontinuing operations before tax (see Note 5) (35) (2) Income tax expense 10 1 Loss from discontinuing operations after tax (25) (1) Profit (loss) from operating activities after tax (11) 7 2.2 Note to Financial Statements for 20X2 The following is Note 5 to Delta Company's financial statements: On 15 November 20Xl, the Board of Directors had announced a plan to dispose of Company's Clothing Division, which is also a separate segment as per AS 17, Segment Reporting. The disposal is consistent with the Company's long-term strategy to focus its activities in the areas of food and beverage manufact....
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....d to assist in clarifying its meaning. Facts l. Paragraph 34 requires that comparative information for prior periods that is presented in financial statements prepared after the initial disclosure event be restated to segregate assets, liabilities, revenue, expenses, and cash flows of continuing and discontinuing operations in a manner similar to that required by paragraphs 20, 23, 26, 28, 29, 31 and 32. 2. Consider following facts: (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 ....