Chapter 1 Section 4: Discontinued Operations and Exit or Disposal Activities

Question 1

What are the three losses (or gains) that can arise from discontinued operations?

Answer 1

Impairment Loss
Loss on Operations
Loss on Disposal

Question 2

When are assets tested for impairment in relation to discontinued operations for GAAP and IFRS?

Answer 2

GAAP: tested after declaration as held for sale
IFRS: required before declaration as held for sale

Question 3

What is required for something to qualify as being able to be a discontinued operations?

GEL

Answer 3

A strategic shift that will have a major effect on operations and financial results

Major Geographic Are
Major Equity Method Investment
Major Line of Business

Question 4

After recording an impairment loss, how do you record subsequent increases in fair value?

Answer 4

A gain can be recognized (less costs to sell) but not in excess of the previously recorded loss.

So if it went from 10 to 7 to 13, you can only record a gain of 3.

Question 5

Do you depreciate assets held for sale?

Answer 5

No

Question 6

Give three examples of exit or disposal costs

Answer 6

Involuntary Employee Termination Benefits
Costs to terminate a non-capital-lease contract
Others like consolidating facilities/relocating employees