Accounting Standard 24: Discontinuing Operations

Learning Outcomes

• Understand the meaning of discontinuing operation.
• Definition of initial disclosure event.
• Recognition and measurement principles.
• Presentation and disclosure requirements.

Introduction

• Discontinuing operations involve the end of a segment, like a key product.
• Important to disclose this change to stakeholders for informed economic decisions.
• AS 24 focuses on separating financial information of discontinuing and continuing operations to aid projections of cash flows and earnings.

Discontinuing Operation

• A discontinuing operation is a component being disposed of entirely, piecemeal, or through abandonment, representing a major line or geographical area.
• Must be operationally and financially distinguishable.
• Example: Selling a restaurant contributing 5% revenue isn't discontinuing. Selling an airline business (25% revenue) is.
• Can be a reportable business or geographical segment as per AS 17.

Examples

• Gradual phase-out or shifting of operations doesn't qualify alone.
• Selling a subsidiary or distinct component can qualify.

Initial Disclosure Event

• Initiated by a binding sale agreement or board approval of a formal plan.
• Formal plan includes asset details, disposal method, affected locations, and estimated proceeds.

Recognition and Measurement

• AS 24 provides no specific guidelines; refer to other relevant standards.

Presentation and Disclosure

Initial Disclosure

• Include description, business segment, event date, expected completion, and financial details in statements.
• Show pre-tax profit/loss on the face of profit/loss statements.

Ongoing Disclosures

• Update significant changes in cash flows or plans in financial statements until completion.

Separate Disclosure

• Required for each discontinuing operation.

Restatement

• Restate prior periods to segregate financials of continuing and discontinuing operations.

Interim Financial Reports

• Disclosures in interim reports per AS 25 should highlight significant activities and cash flow changes.

Questions

• Test theoretical understanding and scenarios, such as phase-outs, without formal plans don't count as discontinuing operations.
• Binding agreements or time-bound plans do trigger AS 24 requirements.