Download Quick Reference on Accounting Standard (AS) 24 Discontinuing Operations
The objective of AS 24 is to establish principles for reporting information about discontinuing operations, thereby enhancing the ability of users of financial statements to make projections of an enterprise’s cash flows, earnings-generating capacity, and financial position by segregating information about discontinuing operations from information about continuing operations.
AS 24 applies to all discontinuing operations of an enterprise.
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.
Initial disclosure event: With respect to a discontinuing operation, the initial disclosure event is the occurrence of one of the following, whichever occurs earlier:
a) the enterprise has entered into a binding sale agreement for substantially all of the assets attributable to the discontinuing operation; or
b) the enterprise’s board of directors or similar governing body has both (i) approved a detailed, formal plan for the discontinuance and (ii) made an announcement of the plan.
Recognition and Measurement: An enterprise should apply the principles of recognition and measurement set out in other Accounting Standards for recognising and measuring the changes in assets and liabilities and the revenue, expenses, gains, losses and cash flows relating to a discontinuing operation.
Separate Disclosure for each discontinuing operation: Any disclosures required by this Standard should be presented separately for each discontinuing operation.
Presentation and Disclosure: Following information relating to a discontinuing operation is to be disclosed in the financial statements beginning with the financial statements for the period in which the initial disclosure event occurs:
a) a description of the discontinuing operation(s);
b) the business or geographical segment(s) in which it is reported as per AS 17;
c) the date and nature of the initial disclosure event;
d) the date or period in which the discontinuance is expected to be completed, if known or determinable;
e) the carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total liabilities to be settled;
f) the amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period;
g) the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period and the related income tax expense; and
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.
Other Disclosures: When an enterprise disposes of assets or settles liabilities attributable to a discontinuing operation or enters into binding agreements in this regard, it should disclose 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 (after deducting expected disposal costs) of those net assets for which the enterprise has entered into binding sale agreement(s), 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: 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 events causing those changes.
Disclosures should continue in financial statements for periods upto and including the period in which the discontinuance is completed.
If an enterprise abandons or withdraws from a plan that was previously reported as a discontinuing operation, that fact, reasons thereof and its effect should be disclosed.
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.
Place of Disclosures
The following disclosures should be presented 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, and the related income tax expense; and
- the amount of the pre-tax gain or loss on the disposal of assets or settlement of liabilities attributable to the discontinuing operation.
All other disclosures required by the Standard should be presented in the notes to the financial statements.
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.