2. Discontinued Operation
is defined as a “component of an entity that
either has been disposed of or is classified as held
for sale”
a) Represents a separate major line of
business or geographical area of operations
b) Part of a single co-ordinated plan to dispose
of a separate major line of business or
geographical area of operations
c) A subsidiary acquired exclusively with a view
to resale
It
3. may be subsidiary
geographical segment whose operations
and cash flows can be clearly
distinguished operationally
for financial reporting purposes
• If its assets and liabilities and its
revenue and expenses are directly
attributable to the component
4. if
they would be eliminated when the
component is disposed of.
Discontinued operation occurs when the
operations and cash flows of that
component have been or will be
eliminated from the ongoing operations of
the entity and the entity and the activity
will have no significant continuing
involvement in that component after its
disposal.
5. Timing of reporting
A component of an entity is classified as
discontinued operation at the date:
When the entity has actually disposed of the
operation.
b) When the operation meets the criteria to be
classified as held for sale
a)
6. Component classified as held for sale
- The component of an entity must be available for
immediate sale in the present condition and the sale must
be highly probable.
- In other words, the discontinued operation is
accounted for as a “ disposal group classified as held for
sale.”
7. Example of Discontinued Operation
Such as:
a. Selling by a diversifies entity of a major division.
b. Selling by a meat packing entity of controlling interest.
c. Selling by a communication entity of all its radio station.
d. Selling of commodity business, real estate, manufacturing and
construction business.
8. Examples which are not discontinued
operation
a. Phasing out of a product line within a product group.
b. Shifting of production or marketing activities.
c. Closing of a facility, factory and branch.
9. Income Statement Presentation
According to PFRS 5, paragraph 33:
“ provide that an entity shall disclose a single amount
comprising the total of post-tax profit or loss of the discontinued
operation and the post-tax gain or loss recognized as the
measurement to a fair value less to cost of disposal or on the
disposal of the assets.”
10.
11. Disclosures about discontinued operation
The following details are disclosed in the notes to financial statements:
a. The amount of revenue, expenses and income or loss
b. Any impartment loss
c. Any gain or loss from the actual disposal of the assets and
settlement of the liabilities of a discontinued operation.
d. The termination cost of employees and other costs.
12. Presentation in Statement of Financial
Position
a. Assets of the components held for sale separately from all other assets.
b. Assets of the components held for sale are measured at the lower of
the fair value less to cost of disposal and their carrying amount.
c. Liabilities of the component separately from all other liabilities.
d. Nondepreciation – noncurrent assets of the components held for sale
shall not be depreciated.
13. Cash flow presentation
According to PFRS 5, paragraph 33:
“ provides that the net cash flows attributable to the
operating, investing and financing activities of a discontinued
operation shall be separately presented in the statement of cash
flows or disclosed in the notes.”
14. Illustration:
The accounting records of Zeta Company
showed the following information for 2013:
Segment A
Segment B
Sales
000
Cost of sales
000
Expenses
Income tax
5, 000, 000
3, 000,
2, 500, 000
1, 400,
1, 000, 000
480, 000
500, 000
240, 000
15. Presentation
ZETA COMPANY
Income Statement
Year ended December 31, 2013
Sales
Cost of sales
Gross income
Expenses
000, 000)
Income before tax
500, 000
Income tax expense
Income from continuing operations
Income from discontinued operation, net of tax
510, 000
Net Income
5, 000, 000
(2, 500,000)
2, 500, 000
(1,
1,
(480,000)
1, 020, 000
1, 530, 000
16. Disclosure
The notes to financial statements shall include the following disclosure
with respect to the discontinued operation.
Sales – Segment B
3, 000, 000
Cost of sales
Gross income
Expenses
Impairment loss
Employee termination cost
Income tax
Income from discontinued operation
(1, 400, 000)
1, 600, 000
(5000, 000)
(200, 000)
(150, 000)
(240, 000)
510, 000
Fair value less cost of disposal of Segment B
Carrying amount of net assets – Segment B
Impairment loss
1, 000, 000
(1, 200, 000)
(200, 000)
17. Abandoned discontinued operation
According to PFRS 5, paragraph 13
“ prohibits noncurrent assets that will be abandoned from being
classified as held for sale. ”
- The standard further provides that if the assets to be abandoned
are a major line of the business, they are reported in discontinued
operations at the date on which they are actually abandoned.
