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Determining When a Disposal Should Be Presented as a Discontinued Operation The unit of account for a discontinued operation is:

 A component of an entity,

 A group of components of an entity, or

 A business or nonprofit entity.(ASC 205‐20‐45‐1A)

The guidance describes a discontinued operation as a disposal of a component, group of components, or an entity that:

 Represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results.and

 Is:disposed of by sale,meets the criteria to be classified as held for sale, ordisposed of by other than sale (for example by abandonment, exchange, or distribution to owner).(ASC 205‐20‐45‐1B)

The guidance goes on to state that a strategic shift could include:

 A major geographical area of operations,

 A major line of business,

 A major equity method investment, or

 Other major parts of an entity.(ASC 205‐20‐45‐1C)

A component is classified as held for sale when all of the following criteria are met:

 Management has the authority to approve and commits to a plan to sell.

 The component is available for immediate sale.

 Management has initiated a program to complete the plan to sell.

 A buyer is being actively sought.

 The sale is probable.

 The transfer will qualify for recognition as a completed sale within one year.

 The sale price being marketed is reasonable.

 It is unlikely that the plan to sell will not be withdrawn or undergo significant changes unless the limited exceptions under ASC 205‐20‐45‐1G are met.(ASC 205‐20‐44‐1E and ASC 360‐010‐45‐9)

Presentation—Income Statement A discontinued operation is reported as such in the period in which the discontinued operation has been disposed of by sale or other means or is classified as held for sale. (ASC 205‐20‐45‐3)

In the period in which a component of an entity is reported as a discontinued operation:
Item	Presentation
Results of operations of that component	Report as a separate component of income, net of tax, before the cumulative effect of accounting changes. (ASC 205‐20‐45‐1B and 45‐3A)
Any gain or loss recognized on disposal or loss recognized on classification as held for sale	Report separately on the face of the income statement or disclose in the notes. (ASC 205‐20‐45‐3B and 205‐20‐50‐1b)
The income statements of any prior periods being presented	Restate to also reflect the results of operations of the component as discontinued operations. (ASC 205‐20‐45‐3)

Gain or loss is calculated based on guidance in other Topics. For example, if the discontinued operation is within the scope of ASC 360, Property, Plant, and Equipment, guidance can be found in that Topic. (ASC 205‐20‐45‐3C)

The following types of debt should be allocated to discontinued operations:

 Interest on debt assumed by the buyer.

 Interest on debt required to be repaid as a result.(ASC 205‐20‐45‐6)

In subsequent periods, adjustments to amounts previously reported may be needed because, for example, of resolution of contingencies related to disposal or operations of the discontinued business or settlement of employee benefit obligations. If adjustments are needed, they should be presented separately in the discontinued operations section where income is reported. (ASC 205‐20‐45‐4 and 45‐5 and 50‐3A)

Presentation—Balance Sheet The assets and liabilities of a disposal group must be presented separately, and not offset, on the face of the balance sheet or by reference in the notes. When the discontinued operation is initially classified as held for sale and from prior periods presented, the major classes of assets and liabilities should be disclosed on the face of the statement of financial position or in the notes. (FASB ASC 205‐10‐45‐10 and 45‐11) and the entity does not have to reclassify previously reported amounts.

Disclosures for Assets Sold or Held for Sale For all types of discontinued operations, disclosures include:

 For periods in which a discontinued operation has been disposed of or is classified as held‐for‐sale:The facts and circumstances leading to the disposal or expected disposal;The expected manner and timing of the disposal;If not separately presented on the face of the income statement as part of discontinued operations, gain or loss recognized on the disposal or loss recognized on classification as held for sale in accordance with the relevant guidance in other subtopics; andThe segment in which the discontinued operation is reported under Topic 280.(FASB ASC 205‐20‐50‐1)

Change to a Plan of Sale If an entity changes its plan of sale, in the period in which that decision is made, it must disclose in the notes:

 The facts and circumstances leading to the decision.

 The effect of the change on the results of operations for all periods presented.(FASB ASC 205‐20‐50‐3)

 The nature and amount of adjustments to amounts previously reported in discontinued operations directly related to discontinued operations.(FASB ASC 205‐20‐50‐3A)

Continuing Involvement After disposal an entity may have significant continuing involvement because of a supply agreement, guarantee, equity method involvement, etc. For as long as the discontinued operation is presented separately, the entity must present information about the entity's significant continuing involvement with a discontinued operation after the disposal date. (FASB ASC 205‐20‐50‐4A)

For each discontinued operation in which the entity retains significant continuing involvement after the disposal date, the entity must disclose:

 Description of the nature of the activities that give rise to the continuing involvement.

 Period of time the involvement is expected to continue.

 The amount of any cash flows.

 Revenues or expenses in continuing operations after the disposal transaction that were eliminated in consolidated financial statements as intra‐entity transactions

 Where an entity retains an equity method investment after disposal:The pretax income of the investee.The ownership interest in the discontinued operation before and after disposal.The ownership interest in the investee after the disposal transaction.Share of the income or loss of the investee in the period after the disposal and where on the income statement that is reported.(FASB ASC 205‐20‐50‐4B)

Disclosures Required for a Discontinued Operation Comprising a Component or Group of Components of an Entity For discontinued operations, to the extent not presented on the face of the financial statements as part of discontinued operations, the entity must disclose:

 Pretax profit or loss.

 Major classes of line items making up the pretax profit or loss.

 For the periods in which the results of discontinued operations are presented in the income statement either:the total operating and investing cash flows of the discontinued operation, orthe depreciation, amortization, capital expenditures, and significant operating and investing noncash items.

 The pretax profit or loss attributable to the parent if the discontinued operation includes a noncontrolling interest.

 Carrying amounts of major classes of assets and liabilities included in discontinued operations for the period in which it is classified as held for sale and all prior periods presented.(FASB ASC 205‐20‐50‐5B)

If the above disclosures are provided in a note, the following amounts, if not considered major, may be aggregated in one line:

 For the initial period in which a disposal group is classified as held for sale and all prior periods,reconciliation of the amounts disclosed in the last bullet of ASC 205‐20‐50‐5B above andtotal assets and liabilities classified as held for sale that are presented separately on the face of the statement of financial position.

 For the periods in which the results of operations of the discontinued operations are recorded in the income statement, the amounts disclosed above and the after‐tax profit or loss from discontinued operations.(FASB ASC 205‐20‐50‐5C and 5D)

Disclosures Required for a Discontinued Operation Comprising an Equity Method Investment

 The entity must disclose summarized information about the assets, liabilities, and results of operations of the investee if that information was disclosed in periods before the disposal. (FASB ASC 205‐20‐50‐7)