F1M5 Discontinued Operations

Question 1

Discontinued Operations Presentation

Answer 1

Discontinued Operations are presented after Income from Continuing Operations as a separate net of tax items. (However, the exam may ask to net the gain/loss of these all items and check if they say to ignore taxes)

The items it presents are:

1. Impairment loss
2. Operation Results
3. Gain or Loss on Disposal Sale

Question 2

Impairment Loss

Answer 2

Happens when a component is classified as Held for Sale.

The lower of Carrying Value and NRV is the impairment loss. (NRV = FV - Selling Fee)

The impairment loss brings the book value down to FV so it is no longer at historical value and depreciation stops.

If FV increases in the next year, we can reverse losses up to previosly recorded impairment loss.

Question 3

Held for Sale classification requirements

Answer 3

Management has a non-withdrawable plan to sell components immediately by looking for a buyer within one year through active marketing.

Question 4

Operation Results

Answer 4

Operation results include all gain/loss of the disposing component for the entire year regardless of the decision date.

Question 5

Gain or Loss on Disposal Sale

Answer 5

Gain or Loss on Disposal Sale is recorded in the year sold.

Question 6

Strategic Shift condition

Answer 6

The disposal will affect a major line of business, a major geographic area, or a major investment (equity method investments)

Question 7

Component definition

Answer 7

A component is part of the entity with its own operation and cash flows. This is required because we need to calculate the operation results.