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    As 24 Discontinuing Operations

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    kuthalishaji3
    As 24 questions

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    As 24 Discontinuing Operations

    Uploaded by

    kuthalishaji3
    8 views2 pages
    As 24 questions

    Original Title

    AS 24 = DISCONTINUING OPERATIONS

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    As 24 questions

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    8 views2 pages

    As 24 Discontinuing Operations

    Uploaded by

    kuthalishaji3
    As 24 questions

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    AS 24 = DISCOUNTINUING OPERATIONS

    OBJECTIVES

    This Standard establishes rules regarding the presentation of information about discounting
    operations in the financial statements.

    SCOPE

    This standard applies to ALL discontinuing operations of an entity.

    DISCUSSION ON OPERATION (component)

    As per the Standard, an operation is a component which is either a major line of business
    (e.g. if a company has paper division, cigarette division and pharmaceutical division, each
    division is treated as major line of business for this Standard) OR business (operations) in a
    particular geographical area (e.g. if a company has business in India, US and Europe, each
    geographical area is treated as a component/ operations for this Standard).

    A component should be separated (distinguished) for operational and financial reporting


    purposes. It can be said if it satisfies ALL the following conditions.

    (a) The operating assets and liabilities of the component can be directly attributed to it
    like accounts receivables, inventory, prepaid expenses, creditors; (operating assets
    and liabilities are those, which are used in or generated from the operating activities
    of the component but NOT from financing activities like loans given/taken or
    investments)
    (b) Its revenue can be directly attributed to it; (the entity should be in a position to
    determine the revenue from operations of the component)
    (c) At least a majority of its operating expenses can be directly attributed to it. (Directly
    attributable means expenses are directly related to the component and if the
    component does not exist, the entity would have not incurred those expenses).
    In another way, if the component is sold, abandoned or otherwise off, the company should
    be in a position to ELIMINATE the assets, liabilities, revenue, and expenses which are
    directly attributable to a component from the financial statements.

    DISCUSSION ON DISCONTINUATION
    Any entity can discontinue its operations (component) in ANY of the following ways:
    1. Selling substantially in total: It can sell all the assets and liabilities (in its entirety) of
    the component by entering into a specific binding sale agreement with the buyer.
    The net result on such sale may be a gain or loss. The actual transfer of possession
    and control of the component and payments may take place at a future specific date
    as per the agreement.
    2. Piecemeal disposal: In this case, the entity does not sell the component at its
    entirety at one time. It will sell the assets and settle the liabilities individually or in
    small groups; hence may occur over a period of months or even longer than that.
    3. Abandonment of operation: In this case, an entity does NOT sell its component and
    just STOPs its operations of the component. Generally entities abandon products,
    product lines or change the size of work force in accordance with the changes in the
    market. These kinds of terminations may NOT be discontinuing operations, as they
    are just changing the product line. One should observe the situation carefully.

    INITIAL DISCLOSURE EVENT


    The initial disclosure event is the occurrence of one of the following, whichever occurs
    earlier:
    (a) Entered into a binding sale agreement for substantially all of the assets attributable
    to the discontinuing operation; or (if the terms and conditions of the agreement
    legally binds the buyers as well as seller, such agreement is treated as binding sale
    agreement)
    (b) Board of directors/ similar governing body has
    (i) Approved a detailed, formal plan for the discontinuance and
    (ii)Made an announcement of the formal plan for discontinuance.
    Once the entity commits itself to a disposal of a component (where there No possibility of
    withdrawal of such commitment), it should disclose the information immediately to the
    majority affected parties like employees, creditors, lenders, government etc.

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