Discontinued Operation Flashcards
What is PFRS 5?
Non-Current Assets Held for Sale and Discontinued Operations
This is defined as a component of an entity that either has been disposed of or is classified as held for sale.
Discontinued Operation
What are the 3 additional characteristics of a discontinued operation?
- represents a major line of business or geographical area of operations
- a part of a plan to dispose of a separate major line of business
- a subsidiary acquired exclusively with a view to resale
How is a discontinued operation accounted for?
As a disposal group classified as held for sale
Once the component of an entity is not sold for a period of 1 year, does it cease to be a discontinued operation?
No
When is a component of an entity classified as discontinued operation?
When the entity has actually disposed of the operation
When the operation meets the criteria to be classified as held for sale
True or False: Retroactive classifications as a discontinued operation when the discontinued criteria are met after the end of the reporting period is suggested by PFRS 5.
False. It is prohibited by PFRS 5
If the discontinued criteria are met after the end of the reporting period, should the entity classify the discontinued operation as held for sale in the current financial statements?
No
This may be a subsidiary, a major line of business or geographical segment whose operations and cash flows can be clearly distinguished, operationally, and for financial reporting purposes, from the rest of the entity.
Component of an entity
How do you distinguish a component of an entity?
If the assets and liabilities and the revenue and expenses are directly attributable to the component
What does “directly attributable” mean?
If the assets, liabilities and the revenue and expenses would be eliminated when the component is disposed of
This occurs when the operations and cash flows of that component have been or will be eliminated from the ongoing operations of the entity and the entity will have no significant continuing involvement in that component after disposal.
Discontinued Operation
Read examples of discontinued operations
How should the amount of income or loss from discontinued operation, net of tax be presented in the income statement?
in a single amount below the income from continuing operations
What are the items included in the amount of discontinued operations?
- Revenue, expenses, income or loss attributable to discontinued operation during the current period (+ income tax)
- Impairment loss
- Gain or loss from actual disposal or settlement of liability
- Termination cost of employees and other costs directly incurred as a result of the discontinuance
Is the income tax of revenue attributable to the discontinued operation included in its amount?
Yes
When is impairment loss recognized?
When the FV less cost of disposal if the discontinued operation is lower than the carrying amount of the net assets.
If the fair value less cost of disposal is higher than the carrying amount, is gain recognized?
No, the expected gain is not recognized.
When is the expected gain recognized?
Once the discontinued operation is sold
When is any gain or loss from the actual disposal of the assets and settlement of liabilities recognized?
At the date of sale or settlement
Can you offset assets and liabilities against the other in the SFP?
No
How are assets of the component held for sale measured?
Lower between FVLCOD and CA
Are assets of the corporation held for sale be depreciated?
No
True or False: If a disposal group is classified as held for sale in the current year, the presentation of the assets and liabilities of the disposal group in the prior period is changed.
False. It is not changed
