Accounting Standard 24: Discontinuing Operations

Accounting Standard 24: Discontinuing Operations

· The standard requires an enterprise to segregate information about discontinuing operations from continuing one and establishes principles for reporting information about discontinuing operations.

· A Discontinuing operation is a part of an enterprise – (a) which is being disposed of or abandoned pursuant to a single co-ordinated plan; (b) it represents separate line of business or geographical area of operations; and (c) can be distinguished operationally and for financial reporting. All these three conditions need to be satisfied simultaneously.

· Initial Disclosure Event is the earliest occurrence of one of the following :–

a. Entering into binding sale agreement for substantially all of the assets attributable to the Discontinuing Operation.

b. Enterprise’s Governing body has approved a detailed, formal plan for the discontinuance and made an announcement of the plan.

· The statement does not establish any recognition and measurement principles. It requires enterprise to follow principles established in other Accounting Standa

rd for the purpose of changes in assets, liabilities, revenue, expenses etc.

· An enterprise should give these information in its financial statements beginning with the financial period in which the ‘Initial Disclosure Event’ occurs: (a) Description of discontinuing operation, (b) Segment in which it is reported as per AS 17, (c) Date and nature of Initial Disclosure Event, (d) Time by which the discontinuation is expected to be completed, (e) The carrying amounts of the assets to be disposed of, (f) Revenue, expenses, pre-tax profit / loss, income-tax in relation to the ordinary activities of identified discounting operations.

· On disposal of Assets or settlement of liabilities, disclosure is required for gain/loss recognised on disposal/settlement and income tax expenses thereto.

· On entering into binding contract for sale of assets, disclosure is required for Net Selling price after deducting expected disposal cost, the expected timing of cash flow and the carrying amount of assets on the balance sheet date.

· For period subsequent to initial disclosure event period, description of any significant changes in amount or timing of cash flow is required to be disclosed.

· The disclosures to continue up to the period in which the discontinuance is completed; i.e., discontinuance

plan is substantially completed or abandoned.

· In case discontinuance plan is abandoned, the disclosure is required of this fact, reason therefore and its effect on the financial statements.

· All disclosures should be separately presented for each discontinuing operation.

· Disclosure of pre-tax profit/loss from ordinary activities of the discontinuing operation, income tax expenses related thereto, pre-tax gain/loss recognised on the disposal / settlement to be made on the face of profit and loss account.

· Comparative information for prior periods to be re-stated to segregate discontinuing operations.

In the Interim financial report, disclosure is required for any significant activities or event and any significant changes in the amount or timing of cash flows relating to disposal / settlement.