[THEORY] Discontinued Operation Flashcards
Which criterion does NOT have to be met in order for an operation to be classified as discontinued?
a. The operation shall represent a separate major line of business or geographical area.
b. The operation is part of a single plan to dispose of a separate major line of business or geographical area.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months of the year-end.
ANS: d. The operation must be sold within three months of the year-end.
An entity manufactures and sells household products. The entity experienced losses associated with the small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of the entity’s operations. The entity decided to sell the small appliance group. What is the earliest point at which the entity shall report the small appliance group as a discontinued operation?
a. When the entity classifies it as held for sale.
b. When the entity receives an offer for the segment.
c. When the entity first sells any of the assets of the segment.
d. When the entity sells the majority of the assets of the segment.
ANS: a. When the entity classifies it as held for sale.
Which is a requirement for a component of an entity to be classified as a discontinued operation?
a. The activities must cease permanently prior to the financial statements being authorized for issue.
b. The component must be a reportable segment.
c. The assets must have been classified as held for sale in the previous financial statements.
d. The component must have been a cash-generating unit while being held for use.
d. The component must have been a cash-generating unit while being held for use.
Which statement is INCORRECT concerning the presentation of the discontinued operation in the statement of financial position?
a. Assets of the component held for sale are presented separately under current assets.
b. Assets of the component held for sale are measured at the lower between fair value less cost of disposal and carrying amount.
c. Liabilities of the component held for sale are presented separately under current liabilities.
d. Depreciable assets of the component held for sale shall be depreciated.
ANS: d. Depreciable assets of the component held for sale shall be depreciated.
Which of the following criteria is NOT required for the results of a component of an entity to be classified as a discontinued operation?
a. Management must have entered into a sale agreement.
b. The component is available for immediate sale.
c. The operations and cash flows of the component shall be eliminated from the operations of the entity as a result of the disposal.
d. The entity shall not have any significant continuing involvement in the operations of the component after disposal.
ANS: a. Management must have entered into a sale agreement.
When a component of an entity was discontinued during the current year, the loss on discontinued operation should
a. Exclude the associated employee relocation cost.
b. Exclude operating loss for the period.
c. Include associated employee termination cost.
d. Exclude associated lease cancellation cost.
ANS: c. Include associated employee termination cost.
When an entity decided to sell a business component, the gain on the disposal should be
a. Presented as other income.
b. Presented as an adjustment to retained earnings.
c. Netted against the loss from operations of the component as a part of discontinued operation.
d. Included in other comprehensive income.
ANS: c. Netted against the loss from operations of the component as a part of discontinued operation.
When a component of a business has been discontinued during the year, the loss on discontinued operation should
a. Include operating loss of the current period.
b. Exclude operating loss during the period.
c. Be classified as an extraordinary item.
d. Be classified as an operating item.
ANS: a. Include operating loss of the current period.
When a component of a business has been discontinued during the year, the component’s operating loss of the current period should be included in
a. Income statement as part of revenue and expenses.
b. Income statement as part of the loss on the discontinued operations.
c. Income from continuing operations.
d. Retained earnings.
ANS: b. Income statement as part of the loss on the discontinued operations.
When an entity discontinued an operation and disposed of the discontinued operation, the transaction should be reported in the income statement as
a. A prior period error
b. Other income and expense item
c. A single amount after income from continuing operations and before net income
d. A bulk sale of assets included in income from continuing operations
ANS: c. A single amount after income from continuing operations and before net income
