Accounting Standard (AS) 24: Discontinuing Operation
AS 24 is applicable to all discontinuing operations.
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 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
- Disposing of piecemeal, such as by selling off the component’s assets and settling its liabilities individually or
- Terminating through abandonment and
That represents a separate major line of business or geographical area of operations.
That can be distinguished operationally and for financial reporting purposes.
Discontinuing operations are infrequent events, but this does not mean that all infrequent events are discontinuing operations.
The fact that a disposal of a component of an enterprise is classified as a discontinuing operation under AS 24 does not, in itself, bring into question the enterprise’s ability to continue as a going concern.
Initial Disclosure Event
With respect to a discontinuing operation, the initial disclosure event is the occurrence of one of the following, whichever occurs earlier:
- The enterprise has entered into a binding sale agreement for substantially all of the assets attributable to the discontinuing operation or
- The enterprise’s board of directors or similar governing body has both
- approved a detailed, formal plan for the discontinuance and
- made an announcement of the plan.
Recognition and Measurement
For recognising and measuring the effect of discontinuing operations, this AS does not provide any guidelines, but for the purpose the relevant Accounting Standards should be referred.
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 occurs:
- A description of the discontinuing operation(s).
- The business or geographical segment(s) in which it is reported as per AS 17.
- The date and nature of the initial disclosure event.
- The date or period in which the discontinuance is expected to be completed if known or determinable
- The carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total liabilities to be settled.
- The amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period.
- The amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto.
- The amounts of net cash flows attributable to the operating, investing, and financing activities of the discontinuing operation during the current financial reporting period.
Disclosures Other Than Initial Disclosures Note
All the disclosures above should be presented in the notes to the financial statements except for amounts pertaining to pre-tax profit/loss of the discontinuing operation and the income tax expense thereon (second last bullet above) which should be shown on the face of the statement of profit and loss.
When an enterprise disposes of assets or settles liabilities attributable to a discontinuing operation 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:
- 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 pretax gain or loss and (ii) income tax expense relating to the gain or loss and
- 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.
Updating the disclosures
In addition to these disclosures, an enterprise should include, in its financial statements, for periods subsequent to the one in which the initial disclosure event occurs, a description of any significant changes in the amount or timing of cash flows relating to the assets to be disposed or liabilities to be settled and the events causing those changes.
The disclosures should continue in financial statements for periods up to and including the period in which the discontinuance is completed.
Separate disclosure for each discontinuing operation
Any disclosures required by AS 24 should be presented separately for each discontinuing operation.
Presentation of the required disclosures
The above disclosures 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:
- The amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto and
- The amount of the pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation.
Restatement of prior periods
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 mentioned above.
Disclosure in interim financial reports
Disclosures in an interim financial report in respect of a discontinuing operation should be made in accordance with AS 25, ‘Interim Financial Reporting’, including:
- Any significant activities or events since the end of the most recent annual reporting period relating to a discontinuing operation and
- Any significant changes in the amount or timing of cash flows relating to the assets to be disposed or liabilities to be settled.