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F1M5 I/S: Discontinued Operations, Discontinued Operations (Types…
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Discontinued Operations
Discontinued operations are located at the bottom of the I/S right after Income from continuing operations. It is reported separately so no there is grouping of gain/loss, also disclosure is required on the F/S or in the notes.
All gain/loss of the disposing component is for the year are recorded in operating results regardless of the decision date.
It reports components that has been disposed or classified as held for sale.
The strategic shift condition must be meet to be reported in discontinued operations.
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Component of an Entity
Components of an entity have distingishable operations and cash flows. For example, segments and subsidiaries.
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Held for Sale
Criteria (all)
- Mgmt plan to sell
- Available for immediate sale
- Actively looking for buyer
- sale is probable and expected to be done in one year
- Actively marketed
- Unlikely to change/withdraw sale
Calculation
Loss from operations,net of tax
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Once something is classified as Held for Sale, impairment analysis for impairment loss is required.
To be classified as Held for Sale it must meet all of its Criterias.
There is a strict plan by mgmt to sell components immediately by looking for a buyer within one year through active marketing.
The impairment loss brings the book value down to FV, it is no longer at historical value and depreication stops. If FV increased in the next year, it can be reversed up the the previously recorded loss.
If all met, impairment analysis must be conducted
Calculations
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There are three items included in the discontinued operations. The impairment loss, the operation results, and gain or loss on disposal sale.
The impairment loss and operation results are recorded when assets are classified as Held for Sale.
The gain or loss on disposal is reported in the year the asset is sold, net of the gain or loss from that year's portion of operating results as well as any adjustments to impairment loss.
Note that everything is net of tax.