Advanced Accounting AS 24 - Discontinuing Operations

AS 24 - DISCONTINUING OPERATIONS
 Overview :
1) Objective & Scope
2) Discontinuing Operations (DO) : Defined
3) Initial Disclosure Event
4) Initial Disclosure Description

 Objective & Scope :

An Enterprise
(invests in)
Operations & Segments
(contributes to)
Revenues, cashflows, assets, expenses in the
process of DISCONTINUATION
(which)
Affects future performance of enterprise.
 Objective:
 To establish principles of reporting information about discontinuing operations.
 To enhance the ability of users of financial statements to make future projections.
 To segregate information about discontinuing from continuing operations.
 To disclose date & nature of initial disclosure event.

CONCEPT 1 : DISCONTINUING OPERATIONS (3 WAYS)

[a] Disposing of or [b] Separate major line [c] Distinguishable

terminating through of Component -Financially
a Single Plan Business or & Operationally
geographical area of distinguishable for
operation (AS 17) reporting purpose.

i) Disposing of in ii) Disposing of iii) Terminating If all conditions

its entirety: Piecemeal: through Abondonment are met

- By Demerger − By Selling − Exception : Changing

- By spin off Components’ assets
- By selling in a & operation or manner
single transaction − Settling its liability
individually.
Binding agreement
with the buyer
i) Operating assets &
liabilities of a
component can be
directly attributed to it.
the scope of
in which it is
conducted is not
abondonment.
ii) Revenue can be iii) At least majority of
directly attributed to its operating expenses
it. can be directly
attributed to it.

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Advanced Accounting AS 24 - Discontinuing Operations
CONCEPT 2 : EXAMPLES OF EXCEPTIONS TO ‘DO’ (BUT IN COMBINATION WITH OTHER
CIRCUMSTANCES)
a) Gradual or evolutionary phasing out of a product line or class of services. (Problem 8)
b) Discontinuing, even if abruptly, several products within an ongoing line of business. (Problem 3)
c) Shifting of some production or marketing activities for a particular line of business from one location
to another.
d) Closing of a facility to achieve productivity improvements or other cost savings. (Problem 7)
e) Change in the scope of operations. (Problem 9)
f) Selling the subsidiary whose activities were similar to its holding company under CFS. (Problem 4)

CONCEPT 3 : INITIAL DISCLOSURE EVENT


Whichever Occurs Earlier
(a) An enterprise has entered into a binding sale agreement for substantially all of the assets attributable
to the discontinuing operations.
(b) Enterprise's Board of Directors or similar governing body has :
i) Approved a detail, formal plan for the discontinuance
ii) Made an announcement of Plan
 (includes)
(a) Identification of major assets to be written off
(b) Expected Method of disposal
(c) Expected Period requires to complete disposal
(d) Principal locations affected
(e) Location, function & expected number of employees who will be compensated for termination
of their services
(f) Estimated Proceeds or salvage value to be realised by disposal
 Note :
 If initial disclosure event occurs after Balance Sheet Date but before approval of BOD in case of
companies, it is treated as occurring after the Balance sheet date & disclosures as per AS 4 are
required.
 Loss recognised in respect of a discontinuing operation is not an Extra-Ordinary item but is an
exceptional item as per AS 5.

CONCEPT 4 : INITIAL DISCLOSURE DESCRIPTION

An enterprise should include information related to the discontinuing operation in its financial statements
for the period in which the initial disclosure event occurs :
a) A description of discontinuing operation.
b) The business or geographical segments in which it is reported as per AS 17.
c) Date & Nature of initial disclosure event.
d) Date or period in which the discontinuance is expected to be completed, if known or determinable.
e) Carrying amounts of total assets to be disposed off & total liabilities to be settled as on b/s date.
f) Amounts of Revenues & Expenses attributable to the operation.
g) Amount of pre-tax profit or loss attributable to DO& related tax expenses.
h) Net Cash Flows attributable to DO& Continuing Operations.

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Advanced Accounting AS 24 - Discontinuing Operations
CONCEPT 5 : DISCLOSURES OTHER THAN INITIAL DISCLOSURES NOTE
 All above disclosures should be presented in notes to financial statements.
 Exception :
 Amounts pertaining to pre-tax profit/loss of the discontinuing operation and income tax expense
thereonshould be shown on the face of the statement of P&L.

CONCEPT 6 : OTHER DISCLOSURES

[a] For any gain or loss recognised on disposal of assets or settlement of liabilities attributable to DO,
(i) amount of 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 enterprise has entered into binding sale agreements, the expected timing of receipt of those
cash flows and the carrying amount of those net assets on balance sheet date.

CONCEPT 7 : UPDATING THE DISCLOSURES

 In addition to the above disclosures enterprise should include in its FS for subsequent period, after
initial disclosure event occurs.
A description of any significant changes in the amount or timing of cash flows, relating to assets or
liabilities.

CONCEPT 8 : CONTINUATION OF DISCLOSURES

 Upto the period in which discontinuance is completed.
 Discontinuance is said to be completed when :
Plan is substantially completed or abondoned though full payment is not received from buyer.

CONCEPT 9 : WITHDRAWAL FROM DISCONTINUATION PLAN

 Reasons & its effects should be disclosed.

CONCEPT 10 : SEPARATE DISCLOSURE FOR EACH DISCONTINUING OPERATION

 Any disclosures required by AS 24 should be presented separatelyfor each discontinuing operation.

CONCEPT 11 : RESTATEMENT OF PRIOR PERIODS

 Comparative information for prior periods that is presented in FS prepared after the initial disclosure
event should be restated to segregate assets, liabilities, revenue, expenses, and cash flows of continuing
and discontinuing operations.

CONCEPT 12 : DISCLOSURE IN INTERIM FINANCIAL REPORTS

 Such disclosures 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.

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