F1.5 Income Statement: Discontinued Operations Flashcards
Discontinued operations
q1, operating loss offset gain from disposal. / q2 loss from operations of component reported and include in loss from discontinued operations. / Once decision made to dispose of a component of a business and component meets criteria to be classified as held for sale, operating results of component for period reported on, and any gain or loss from disposal, should be reported separately from continuing operations, net of tax. / q3, decision to dispose made on Oct Y4, but Y4 IS includes all losses for Y4 (jan-dec), NOT from oct-dec./ plan and approved segment qualify as discontinued operation
Segment discontinued in Y1, loss from discontinued ops. Should not:
Exclude operating losses from date the decision to dispose of segment was made until end of Y1. ALL Y1 operating losses should be included.
Y2 IS, amount to report discontinued operations
Y2 operating loss + additional loss on disposal, net of tax (1-T).
Earliest point report discontinued operation
When entity classifies it as held for sale. “Held for sale” criteria: 1. Mgmt commits to a plan to sell the component 2. component is avaialble for immediate sale in its present condition 3. An active program to locate a buyer has been initiated 4. sale of component is probable and sale is expected to be completed within one year. 5. Sale of component is being actively marketed 6. It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.
Loss on discontinued operations
q12, decision made in Y1, include monthly losses + impairment loss (BV - FV) = total Y1 loss on discontinued operations (assuming op. not sold in Y1). / q14 net loss of discont. Op. will include gain from sale of division, operating loss, employee termination benefit and cost to terminate operating lease. Exit and disposal costs related to discont. op. are reported in discont. op. on IS.
Building held for sale
NOT valued at historical cost. Old building actively marketed for sale will be valued at lower of its book value or net realizable value (FV less costs to sell).
Discontinued operation occur midyear, how to report
Include in net income and disclose in the notes to interim financial statements
Items to report separately as component of income from continuing op.
- Retirement of debt is unusual but not infrequent. It should be reported separately in income from cont. op. 2. steel suffered hurricane damage (4th time in 5 years) is “unusual in nature” and reported separately as a component of “income from continuing operations”. 3. Loss on steel transportation op. is reported under discont. Op., net of tax. 3.
