4.4: Discontinued Operations Flashcards
What are discontinued operations?
Discontinued operations refer to separate components of an enterprise that have been disposed of (by sale, abandonment, or spinoff) or are classified as held for sale.
They are typically major lines of business or geographical areas.
How are discontinued operations presented in financial statements?
Discontinued operations are shown separately on the statement of income/comprehensive income and the statement of cash flows, net of tax.
What is considered a component of an enterprise?
A component of an enterprise is a segment that must generate its own net cash flows and have operations, cash flows, and financial elements distinguishable from the rest of the enterprise.
What is required for assets to be classified as held for sale?
Assets must meet the following criteria:
An authorized plan to sell.
Available for immediate sale in their current state.
Active program to find a buyer.
Sale is probable within a year.
Asset is reasonably priced and actively marketed.
Changes to the plan are unlikely.
How are assets held for sale treated in financial statements?
When classified as held for sale, the asset is remeasured to the lower of its carrying amount or fair value less the cost to sell.
Once classified, no further depreciation is recognized, and related gains/losses are presented separately on the balance sheet.
How do IFRS and ASPE differ in the presentation of held-for-sale assets?
IFRS: Held-for-sale assets are classified as current assets and shown separately on the balance sheet.
ASPE: Assets are shown in their original classification, whether current or non-current.
What is the key principle in Underlying Concept 4.6?
The business model should be transparent.
Financial statements should reflect how the company earns income and creates shareholder value, showing which operations and assets will continue.
How should the results of discontinued operations be presented in the income statement?
The results should be shown separately from continuing operations, net of tax, for both the current and prior periods.
