Discontinued OPeration

Question 1

When is an impairment loss recognized?

Answer 1

A loss is recognized when recording the impairment of the component. Ii.e any initial or subsequent write down to fair value less cost to sell

SP or NRV is less than book value. SP/NRV < BV
e.g NRV= $4,000 and BV=$4,500
Impairment loss (IL) = ($500)

If given Selling price and cost to sell, take selling price and substract cost to sell to get the net realizable value NRV.

SP/NRV

Question 2

When is an impairment gain recognized?

Answer 2

A gain is recognized when there is a subsequent increase in the fair value minus the cost to sell. ( but not in excess of the previously recognized cumulative loss).
That means don’t book more that the previous impairment loss that was recorded.

e.g Yr 1 - SP=9 (cost to sell =1 ) that means NRV =8 and BV=10
SP/NRV

Question 3

What are the three items included in discontinued operations?

Answer 3

1. Results of operations of the component (gain or loss) for that period only
2. Gain or loss on disposal of the component in the year it happens. (when it is sold) carrying value - selling price
3. Impairment loss (and subsequent increase in fair value) of the component , Upon it is “held for sale.”