TMI BlogDiscontinuing OperationsX X X X Extracts X X X X X X X X Extracts X X X X ..... . Definitions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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, 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 [1] Date and Accounting Standard on Impairment of Assets. Presentation and Disclosure Initial Disclosure 20. An enterprise should include the following information relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or enters into binding agreements for the sale of such assets or the settlement of such liabilities, it should include, in its financial statements, the following information when the events occur: (a) for any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t financial reporting period, and the income tax expense related thereto [paragraph 20(g)]; and (b) the amount of the pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing 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 be 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 even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard is also recognised. The Company continued to operate the Clothing Division throughout 20X2. u At 31 December 20X2, the carrying amount of the Clothing Division s net assets is ₹ 45 lakhs, consisting of assets of ₹ 80 lakhs minus liabilities of ₹ 35 lakhs (including provision for expected termination cost of ₹ 30 lakhs). u Delta Company prepares its financial statements annually as of 31 December. It does not prepare a cash flow statement. u Other figures in the following financial statements are assumed to illustrate the presentation and disclosures required by the Standard. I. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istent 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 ₹ 85 lakhs (previous year ₹ 120 lakhs) and its liabilities were ₹ 15 lakhs (previous year ₹ 20 lakhs). The following statement shows the revenue and expenses of continuing and discontinuing operations: (Amount in Rs. lakhs) Continuing Discontinuing Total Operations (Food Operation and Beverage (Clothing Divisions) Division) 20X1 20X0 20X1 20X0 20X1 20X0 Turnover 90 80 50 70 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20X2 20X1 20X2 20X1 20X2 20X1 Turnover 100 90 40 50 140 140 Operating Expenses (60) (65) (30) (27) (90) (92) Impairment Loss - - (10) (20) (10) (20) Provision for employee termination - - (30) - (30) - Pre-tax profit (loss) from operating activities 40 25 (30) 3 10 28 Interest expense (20) (10) (5) (5) (25) (15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuing Continuing Discontinuing A A B B C C D D FINANCIAL STATEMENTS FOR YEAR 4 (Approved and Published early in Year 5) Year 3 Comparatives Year 4 Continuing Discontinuing Continuing Discontinuing A A B B C C D D ..... 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