Study Unit 4.1: Discontinued Operations Flashcards
In order to report discontinued operations separately, what 3 conditions must be met?
1) a Component of the entity has been DISPOSED OF or CLASSIFIED AS HELD FOR SALE.
2) Its operations & Cash Flows are or will be eliminated from the entity’s operations.
3) The entity will have no significant continuing involvement after disposal.
As you think about Discontinued Operations, How would you define a COMPONENT?
A COMPONENT of an entity has operations and cash flows that are clearly distinguishable for operating and financial reporting purposes.
In other words, it is a segment of a business that generates its own financials.
For Example: Think of the Discover Credit Card business, which is a separate business segment / subsidiary under the Morgan Stanley Corporation.
List 5 things that a COMPONENT may be:
1) Reportable Segment
2) Operating Segment
3) Reporting Unit,
4) Subsidiary, or
5) Asset Group (A disposal group if it is to be disposed of)
True of False? If a long-lived asset (a disposal group) is not a COMPONENT, it can not be reported as discontinued operation.
True:
If a long-lived asset (a disposal group) is not a COMPONENT, it can not be reported as discontinued operation. In which case, a GAIN or a LOSS on its sales would be reported where?
A gain or Loss on its sale is included in Income from Continuing Operations before income taxes.
Amounts reported in discontinued operations may require adjustments. I fthe adjustment DIRECTLY RELATES to a PRIOR-PERIOD DISPOSAL of a component, then how is it reported in Discontinued Operations?
It is reported CURRENTLY and SEPARATELY in DISCONTINUED OPERATIONS.
What may ADJUSTMENTS include? List two things ?
ADJUSTMENTS may include:
1) CONTINGENCIES - from the terms of the disposal transaction may be resolved
Example: Purchase Price Adjustments
True or False? Contingencies directly related to the pre-disposal operations of the component may be resolved. If so, List an example?
True:
Contingencies directly related to the pre-disposal operations of the component may be resolved
Example: SELLER’S ENVIRONMENTAL & WARRANTY OBLIGATIONS.
True or False? Under the terms of CONTINGENCIES: Employee Benefit Plan Obligations for Pensions and other Post Employment Benefits may be settled.
True:
True or False? Reporting in Discontinud Operations is required if the settlement directly related to the component disposed of.
True
Where on the Income Statement is the DISCONTINUED OPERATIONS section presented.
The DISCONTINUED OPERATIONS section is presented:
- AFTER, the INCOME FROM CONTINUING OPERATIONS SECTION
&
- BEFORE, the EXTRAORDINARY ITEMS section.
When a COMPONENT is classified as HELD FOR SALE, how is it measured.
When a component is classified as held for sale, it is measured @
- LOWER CARRYING AMOUNT or
- FAIR VALUE minus COST to Sell.
What does Operating results reported in discontinued operations include?
Operating results reported in discontinued operations include:
- Any Income Earned during the reporting period.
or
- Loss Incurred during the reporting period.
True or False? Any Gain or Loss on Disposal must be disclosed on the face of the income statement or in the notes.
True
True or False? Basic & Diluted EPS amounts for a discontinued operation are presented on the face of the income statement or in the notes
True
