Atal, Mary Jane C.

Don’t repay evil for evil. Don’t retaliate with insults when people insult you. Instead, pay them back
with a blessing. That is what God has called you to do, and he will grant you, his blessing.
1 Peter 3:9

Reflection: Repay evil with goodness and blessings. Let’s be different and make every opportunity
to spread the light of Jesus to other people by doing good all the time. May we never get tired of
doing good to those people who mistreated us. May we never get tired of giving goodness and
kindness to someone even though it is not reciprocated. If those people cannot give it back, the
Lord who sees will reciprocate it abundantly with blessing of love, joy, hope and peace. The world
is so cruel and it is in need of someone who can be a vessel of God’s love, goodness and kindness.
Why don’t we become that someone?

DISCONTINUED OPERATIONS

RELATED STANDARD:
PFRS 5 – Noncurrent Held for Sale and Discontinued Operations
DEFINITION:

Disposed
Discontinued Component of
Operations an entity either
Classified as
held for sale

a. represents either a separate major line of business or a geographical area of operations

b. part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations
c. is a subsidiary acquired exclusively with a view to resale and the disposal involves loss
of control.
Note:
➢ Component – clearly distinguished operationally and for financial reporting purposes when
the assets and liabilities and its revenue and expenses are directly attributable to the
component (if they would be eliminated when the component is disposed).
➢ Components classified as held for sale if:
• Available for immediate sale
• Sale is highly probable
RECOGNITION:
Discontinued operations occur if the ff happens:
1. Eliminate (will eliminate) the results of the operations and cash flows of a component from
its on-going operations
2. No significant continuing involvement after its disposal
Atal, Mary Jane C.

Discontinued operations occur at the EARLIER:

a. Date of actual disposal
b. Date the when conditions of being held for sale are met
Note: Discontinued criteria are met after the end of the reporting period – not classified as DO as held
for sale in the current FS.
MEASUREMENT:
➢ Results of Operations – before and after the classification are part of the DO
➢ FS in the prior period – restated
➢ Solution Guide:

Sales (before and after reclassification during the year) xx

Expenses (before and after reclassification during the year) (xx)
Impairment loss (xx)
Gain and losses from actual disposal and settlement if the liabilities of
a DO (recognized at the date of sale or date of settlement) (xx)
Direct cost (pension cost, termination cost, etc) (xx)
Income or loss from discontinued operations xx
Multiply by: (1 minus tax rate) xx
Income or loss from discontinued operations, net of tax xx

Note:
• Impairment loss – CA>FVLCTS
• Expected gain not recognized – FVLTCS>CA
PRESENTATION:
❖ Income Statement - income or loss from discontinued operations, net of tax, are presented
after income or loss from continuing operations
❖ Balance Sheet
• Assets of the component HFS separately from all other assets
• Assets of the component HFS - measured at lower of FVLCTs and their CA.
• Liabilities of the component separately from all other liabilities
• Non-depreciation - NCA of the component HFS are not depreciated
❖ PFRS 5 provides that the assets of the components are presented as a single amount under
CA and the liabilities of the component shall be presented as a single amount under CL.
❖ If a disposal group is classified as held for sale in the current year, the presentation of the
assets and liabilities of the DG in the prior period is not changed.
❖ Note: Assets and liabilities of the component - cannot be offset against each other

DISCLOSURE:
An entity shall disclose:
• A single amount in the SCI comprising the total of:
Atal, Mary Jane C.

i. Post-tax P/L of discontinued operations

ii. Post-tax G/L recognized on the measurement of FVLCTS or on disposal of the
assets or disposal groups constituting discontinued operations.
• Analysis of the single amount into:
i. Revenue, expenses and pre-tax P/L of discontinued operations (DO)
ii. Related interest tax expense
iii. G/L recognized on the measurement of FVLCTS or on disposal of the assets or
disposal groups constituting discontinued operations + related interest tax expense
• Net cash flows attributable to the operating, investing and financing activities of DO –
either in notes or FS
• Amount of income from continuing operations and from discontinuing operations
attributable to owners of the parent – either in notes or SCI

ILLUSTRATION:
On May 1, 2020, SILVER SWAN CORP. approved a plan to dispose of a business segment. It is expected
that the sale will occur on March 31, 2021. On December 31, 2020, the carrying amount of the assets
of the segment was P4,000,000 and the fair value less cost of disposal was P3,600,000. During 2020,
the entity paid employee severance and relocation costs of P200,000 as a direct result of the
discontinued operation. The revenue and expenses of the discontinued segment during 2020 were:

Revenue Expenses

January 1 to April 30 1,500,000 2,000,000

May 1 to December 31 700,000 900,000

The income tax rate is 30%.

REQUIREMENT: What amount should be reported as loss from the discontinued segment for 2020?
Solution and Discussion:
Sales (P1,500,000 + P700,000) P 2,200,000
Expenses (P2,000,000 + P900,000) (2,900,000)
Impairment loss (FVLCTS: P3,600,000 – CA: P4,000,000) (400,000)
Direct cost (pension cost, termination cost, etc.) (200,000)
Loss from discontinued operations before tax (P1,300,000)
Multiply by: (1 minus tax rate) 0.70
Loss from discontinued operations, net of tax (P 910,000)

Note: Although the business segment is classified as discontinued operation on May 1, 2020, the
revenue and expenses used for the computation of the income/loss from discontinued operations is
all the results of its operations before and after the classification as DO during the year. Always
remember that the entity shall present the results of discontinued operations, NET OF TAX, on the
face of the statement of comprehensive income.
Atal, Mary Jane C.