Discontinuing Operations (AS-24)
Need & Objective
The objective of standard is to establish principles for reporting
information about discontinuing operations. The focus of the disclosure of
the information is on the operations which the enterprise plans to
discontinue rather than disclosing about the operations which are already
discontinued.
If the enterprise has plan to discontinue the operation of particular
segment, the user has to understand the information about the
discontinuing operation distinctly from those of the continuing operation
so that the user can make projections of an enterprise cash flows, earning
generating capacity and financial position by segregating information
about discontinuing operation from information about continuing
operation.
Discontinuing Operation
As per paragraph 3 of the standard, a discontinuing operation is a
component of an enterprise:-
That the enterprise, pursuant to a single plan is –
• Disposing of substantially in its entirety such as selling the
component in a single transaction ao by demerger or spin off
of ownership of the component to the enterprise’s
shareholders or
• Disposing of piecemeal, such as by selling off the
components asset and setting its liabilities individually or
• Terminating though abandonment and
That represents separate major line of business or geographical
area of operation and
That can be distinguished operationally and for financial reporting
purposes.
From the above definition, we can say that discontinuing operation is
relatively large component of an enterprise which is major line of business
or geographical segment, this is distinguishable operationally or for
financial reporting such component of business is being disposed on the
basis of an overall plan in its entirety on in parts. Discontinuance will be
carried either through demerger or spin-off, piecemeal disposal of asset
and settling of liabilities or by abandonment.
For Example: XY Ltd. has three major lines of business steel, tea and
electrical appliances; it has decided to sell the steel division during the
financial year 2002-2003. A sale agreement has been entered into on 30-
11-2002 with Z Ltd. Under which steel division shall be transferred to Z
Ltd. on 30-03-2003. This is a case of disposing of substantially in its
entirety. However, if resolution is passed for sale of various asset and to
repay the various liabilities individually of steel division, accordingly the
assets like land and building, plant and machinery are sold separately and
various liabilities like those of creditors are paid individually, it is a case of
“disposing by piecemeal”.
Termination by abandonment – An enterprise may terminate an operation
by abandonment without substantial sale of asset, however, if scope of
operation is changed, it is not case of discontinuing operation as the
operation is continuing although in altered manner, closure of product line
may not necessarily signify discontinuing operation if the operation is
continuing for a different product.
Abrupt or unplanned changes – further abrupt change or unplanned
change in product line is not discontinuing operation.
Some examples - Accounting standards gives some examples which do
not necessarily satisfy criteria of discontinuing operation but might be
considered discontinuing operation in combination with other
circumstances i.e. –
Gradual phasing out of product line or class of service.
Discontinuing, even if abruptly, several products within an ongoing
line of business.
Shifting of some production or marketing activities for particular line
of business from one location to another.
Closing of facility to achieve productivity, improvements or other
cost savings.
Selling a subsidiary whose activities are similar to those of the
parent or other subsidiaries – this is relation to consolidated
financial statements. In fact it is a case of disposing of investments
in subsidiary or subsidiaries.
Initial Disclosure event
Information about planned discontinuance must be disclosed in the first
set of financial statement immediately after the ‘initial disclosure event’,
initial disclosure event is the event out of these two and whichever occurs
earlier –
Entering into an agreement to sell substantially all the asset of the
discontinuing operation.
Approving and announcing of the discontinuance plan.
Presentation & Disclosure
Initial disclosure – First disclosure after initial disclosure event
occurs about the discontinuing operations.
• Description of the discontinuing operation.
• Business or geographical segments in which it is reported.
• Date and nature of initial disclosure event.
• Timing of expected completion of discontinuance.
• Carrying amount of total assets and liabilities to be disposed
of.
• Amount of revenue and expense attributable to discontinuing
operation.
• Amount of pre-tax profit or loss and tax expense attributable
to discontinuing operation.
• Net cash flows attributable to the operating, investing and
financing activities of the discontinuing operation.
Other disclosure – when an enterprise of asset or settles liabilities
attributable to discontinuing operation, the following other
information are also disclosed.
• Amount of gain or loss recognised on the disposal of assets or
settlement of liabilities and related income-tax.
• Net selling prices from the sale of those net assets for which
the enterprise has entered into binding sale agreements and
the expected timing thereof and carrying amount of those
assets.
Manner of disclosure
The disclosure of amount pre-tax profit or less and tax expense and
amount of gain or losses recognised on disposal of assets and settlement
of liabilities should be disclosed on the face of statement of profit/loss
accounts, other information should be disclosed in the notes to accounts.
Updating the disclosure
The disclosure required for discontinuing operation should continue in
financial statements for the period up to and including the period in which
the discontinuance is completed, the disclosure require should be
updated.
Recognition and Measurement
Standard prescribes that an enterprise should comply with the principles
of recognition and measurement that are set out in other accounting
standards for the purpose of deciding how and when to recognise and
measure the changes in asset and liabilities and the income and expense
and cash flow of discontinuing operation.
Interim Financial Reports
Interim financial reports should disclose in its notes any significant
activity or event since the end of the most recent annual reporting
relating to discontinuing operation and any significant change in the
amount or timing of cash flows relating to asset and liabilities to be
disposed/settled.
INDIAN GAAP/AS-24 IFRS/IAS-5 US GAAP/FASB-144
Title
AS-24 has been titled IFRS-5 is named as US GAAP is titled as
as “discontinuing “Non-current assets “Accounting for the
operation “ held for sale and impairment of Disposed
discontinued operation” of Long-lived assets”
Time of Disclosure Event
The disclosure for The disclosure for The disclosure for
‘discontinuing ‘discontinuing ‘discontinuing’ will be
operation’ is to be operation’ is done after earlier as compared to
made after the ‘initial the classification of IFRS-5 & AS-24
disclosure event’ non-current asset as
‘held for sale’
Calculation
As per AS-24 these As per IFRS-5 after the As per US GAAP after
assets are to be carried non-current assets are the non-current assets
at cost less classified as ‘held for are classified as ‘held
depreciation less sale’ these will be for sale’ these will be
impairment loss. carried at lower of carried at lower of
carrying amount and carrying amount and
fair value. fair value.
Presentation
As per AS-24 do not As per IFRS-5, As per US GAAP do not
prescribe so and, Asset/Liabilities prescribe so and,
disclosure is made classified as ‘held for disclosure is made
through notes to sale’ to be presented through notes to
accounts. separately on the face accounts.
of the balance sheet
similarly income
pertaining to
discontinuing operation
to be separately
disclosed on the face of
income statement.
Accounting Standard - 24
(Discontinuing Operation)
Submitted By :
Roll No. Name
07 Sarvesh Chavan
40 Umesh Parulekar
Submitted To :
Prof. Sadhana Ogale
DEPARTMENT OF
MASTER OF MANAGEMENT STUDIES
SARASWATI COLLEGE OF ENGINEERING, KHARGHAR
