Financial: M5 - Income Statement: Discontinued Operations
Criteria for Held for Sale
(0) Conduct impairment analysis (1) Management commits to a plan to sell the component (2) Component is available for immediate sale (3) Active program to locate a buyer (4) Sale of component is probable and expected to be completed within one year. (5) Sale is being actively marketed (6) Significant changes to the plan are unlikely
When are anticipated gains and losses recognized for held for sale/disposed components?
(1) Future losses are recognized when impairment analysis is conducted on the component (2) Future gains are not recognized until they occur.
Items included in discontinued operations
(1) Impairment Loss (2) A gain or loss form actual operations (3) Gain or loss on disposal *All included in the period in which they occur
Order of discontinued operations calculations
(1) Impairment loss (initial and subsequent) (2) Results of operations (3) Gain or loss on disposal of the component
Examples of components of an entity
(1) Operating segment (2) Reportable segment (3) Reporting Unit (4) Subsidiary (5) An asset group
What happens to depreciation/amortization of a component when management decides to dispose of it?
Assets within the component are no longer depreciated/amortized.
Where are discontinued operations included on the IS?
Discontinued operations are category #3 on the IS, after income from continued operations. *They are reported NET OF TAX.*
When is the disposal of a component/group of components reported in discontinued operations?
If the disposal represents a *strategic shift* that will have a major effect on an entity's operations and financial results. (1) Disposal of major geographic area (2) Disposal of major equity method investment (3) Disposal of a major line of business
How are discontinued operations that occur at midyear initially reported?
Included in net income and disclosed in the notes to *interim* financial statements.
Component of an Entity
Part of an entity for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.
How are held for sale components measured?
They are measure at the *lower of* (1) Book value/Carrying value (2) NRV (Fair value - Costs to sell)
When are the results of operations from a discontinued/held for sale component reported?
They are reported under discontinued operations in the period in which they occur.
