Exit or Disposal Activities and Discontinued Operations

Question 1

How do you calculate the gain or loss when you sale a fixed asset?

Answer 1

Asset - Accumulated Depreciation- Cash received= Gain or loss

Question 2

Disclosure requirements for disposal of assets:

Answer 2

For significant disposal:

1) Facts and circumstances surrounding the disposal
2) Expected manner of the disposal and timing

Recorded in other income or expense

Question 3

Define asset’s-held-for-disposal:

Answer 3

presented separately on the balance sheet and depreciation is discontinued

Question 4

When do you have a discontinued operation:

Answer 4

1) Component of the business that has cash flows

2) Elimination is a “strategic shift”– major geographical area, line of business, etc.

Question 5

T/F: An entity does not need to report EPS for discontinued operations.

Answer 5

False

Question 6

T/F: An entity needs to recast previous income statements for previous periods for discontinued operations?

Answer 6

True

Question 7

T/F: Discontinued operations is one line, net of tax

Answer 7

True

Question 8

The assets and liabilities that are part of discontinued operations are classified as and measured at:

Answer 8

held-for-sale

Measured at: lower of carrying value OR fair value less cost to sell. Any gain or loss is included in the income or loss from discontinued operations.

All prior balance sheets are also reclassified to show the new asset value.

Question 9

What disclosures are required for exit or disposal actives:

Answer 9

1) Fact and circumstances leading to the discontinued operations
2) Expected manner and timing
3) Major lines of income (revenue, cost of sales, depreciation)
4) Major classes of assets and liabilities
4) Total operating and investing cash flows from the discontinued operations