FAR - Specific Transactions, Events, & Disclosures - Exit or Disposal Activities & Discontinued Operations

Question 1

Disposal of an asset

Answer 1

company may sell, dispose, abandon or convert a plant asset.

• record depreciation up to date sale
• calculate gain/loss

Asset cost - Acc deprec = NBV - cash rec’d = gain/loss

Question 2

Exit/Disposal - Disclosures

Answer 2

1) description of facts/circumstances
2) expected manner/timing of disposal
3) gain/loss on disposal
4) where gain is reported on income statement
5) held-for-disposal present separately on balance sheet
6) segment in which asset belongs
7) major line items of income
8) total operating/investing cash flows of discontinued operations
9) depreciation, amortization, capital expenditures, and significant noncash operating/investing items

Question 3

Discontinued operations

Answer 3

disposal of 1 component of business ONLY if it represents “strategic shift” -> major impact on operating results

Examples:

1) major geo. area
2) line of business
3) equity method investment

Question 4

Income Statement Reporting

Answer 4

discontinued ops reported below IFCO on after-tax basis.

EPS for discontinued ops is present

discontinued ops = only item separated from IFCO

• operating income (loss) of discontinued component reported as discontinued for ALL periods presented

Question 5

Balance Sheet

Answer 5

CV of assets/liab part of discontinued ops classified “held-for-sale”

disposal group held for sale should be remeasured @ lower of its CV or NRV -> resulting gain/loss included in income/loss from discontinued ops

*all prior periods are adj.

Question 6

Comparative Statements

Answer 6

discontinued ops component must be segregated in previous yrs

*financial results for all yrs PRESENTED should be on same basis

Question 7

(IFRS), how are discontinued operations identified?

Answer 7

A component with operations that are a separate major line of business or geographical area, part of a coordinated plan to sell or and subsidiaries acquired with the intent to resell.

Question 8

Define “loss on disposal”.

Answer 8

Actual/estimated losses = when BV > NRV

Question 9

two values to report for discontinued operations.

Answer 9

1) income from discontinued ops

2) gain/loss on disposal

Question 10

Where is gain/loss on disposal shown?

Answer 10

separate line item in the DOP section of the income statement or netted against the discontinued component’s operating income with a footnote disclosure showing both

Question 11

true/false

Estimated disposal gains are not recognized, only estimated losses.

Answer 11

true