CICA 3475 LongLivedAssets

Guide to Accounting for the Disposal of Long-lived Assets and Discontinued Operations
An Analysis of CICA Handbook Section 3475
AU D I T
Table Of Contents
Section 1 Overview Section 2 Scope QUESTIONS 1. 2. 3. 4. Oil and Gas Properties Under the Full-Cost Method Debt Issuance Costs Equity Method Investments Costs Incurred in Connection With a Disposal of Long-lived Assets 3 4 4 4 6 8 1 3
Section 3 Disposal by Abandoment, or Exchange or Distribution Section 4 Conditions For Classifying an Asset or Group as Held For Sale QUESTIONS 5. 6. 7 . 8. 9. Continued Use of Assets Backlog of Uncompleted Customer Orders Real Estate Property Acquired Through Foreclosure Notification and Transfer Restrictions Due Diligence Procedures
9 9 9 10 10 10 11 11 11 12 13 13 13 14 15 15 16
10. Long-Term Supply Arrangement 11. Plan to Close Manufacturing Facilities After Next Production Cycle
12. Plan to Close a Store 13. Uncertainty About Nature of Disposition (Sale or Lease)
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14. Commitment to Sale-leaseback Transaction 15. Asset Classification in Subsidiary Statements When Parent Plans to Sell the Subsidiary 16. Commitment to Remediate Environmental Contamination 17 . Extension of Period Required to Complete Sale
18. Decline in Market Conditions 19. Foreclosed Assets 20. Subsequent Decision Not to Sell an Asset 21. Disposal of Substantially all of the Assets
This Guide contains materials that have been reproduced from CICA Handbook Section 3475, Disposal of Long-Lived Assets and
Discontinued Operations, and other related guidance with the permission of The Canadian Institute of Chartered Accountants. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The information contained herein is current at October 31, 2004 and users are responsible for informing themselves of any changes in accounting standards since that date.
KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
Section 5 Measurement of an Asset or Disposal Group Classified as Held For Sale QUESTIONS 22. Costs to Sell 23. Including Goodwill in the Carrying Amount 24. Allocating Measured Impairment Loss within Asset Group 25. Foreign Currency Translation Adjustment Section 6 Income Statement Reporting of Discontinued Operations QUESTIONS 26. Assets Outside the Scope of HB 3475 27 . Operations to Be Disposed of Through Run-off
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18 18 18 19 20
21 21 22 22 23 24 24 25 25 26 26 27 27
28. Equity Method Investments 29. Sales in the Normal Course of Business 30. Evaluating the Materiality of a Discontinued Operation 31. Relationship of Component of an Entity to an Asset Group 32. Oil and Gas Properties Accounted for Under the Full Cost Method 33. Corporate Overhead Allocation 34. Subsequent Decision to Retain a Disposal Group 35. Criteria Met After Year End 36. Earnings per Share 37 .
Investor Income Statement Presentation of Discontinued Operations of an Equity Method Investee
38. Presentation of Minority Interest When Parent Reports Subsidiary as a Discontinued Operation Section 7 Reporting Impairment Losses on Assets Held and Used and Disposal Gains or Losses in Continuing Operations QUESTIONS 39. Gain on Sale or Other Disposal of a Long-lived Asset Section 8 Balance Sheet Presentation and Disclosure of Composition of a Disposal Group Classified as Held For Sale QUESTIONS 40. Classification of Assets and Liabilities of a Disposal Group
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Section 9 Issues Related to Discontinued Operations Reporting For Real Estate Entities QUESTIONS 41. Build-to-Suit Property With Contract to Sell 42. Property Sold Before Rental Revenues Commence 43. Property Classified as Held and Used During Lease-up Period 44. Property Classified as Held for Sale During Lease-up Period 45. Sale of Refurbished Property 46. Sale of a Majority Interest in a Previously Controlled Real Estate Entity When the Retained Minority Interest is Accounted for Under the Equity Method 47 . Sale of a Majority Interest in a Previously Controlled Real Estate Entity When the Retained Minority Interest Is Accounted for Under the Cost Method
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30 30 31 31 32 32 33 33 33 35 35 36
48. Sale of Property to an Equity Method Investee 49. Sale of Property and Concurrent Management Agreement Section 10 Transition 50. Run-off Operations Under HB 3475 Acronyms Defined
Section 1 Overview
In December 2002, the Accounting Standards Board (the AcSB or the Board) of The Canadian Institute of Chartered Accountants (CICA) issued Handbook (HB) revised Section 3475 (HB 3475 or the Section), Disposal of Long-Lived Assets and Discontinued Operations, which addresses the recognition, measurement, presentation and disclosure of the disposal of long-lived assets and of discontinued operations. HB 3475 supersedes the write-down and disposal provisions of HB 3061, Property, Plant and Equipment. HB 3475 also supersedes the accounting and reporting provisions of previous Section 3475, Discontinued Operations, for the disposal of a segment of a business. However, it retains the requirement in previous Section 3475 to report separately discontinued operations and extends that reporting to a component of an entity that an entity either has disposed of (by sale, abandonment or in a distribution to owners) or classified as held for sale. By broadening the presentation of discontinued operations to include more disposal transactions, the CICA intended to enhance managements ability to provide information that helps financial statement users to assess the effects of a disposal transaction on the ongoing operations of an entity. In 2001, the AcSB decided to develop a new accounting standard on the impairment of long-lived assets. After considering alternative approaches, it was decided to harmonize with U.S. Financial Accounting Standard Board (FASB) Statement No. 144, Accounting for the Impairment or Disposal of . In addition to impairment, Statement No. 144 addresses Long-Lived Assets accounting for the disposal of long-lived assets by sale or otherwise, as well as discontinued operations. The guidance on accounting for long-lived-assets was more complete in Statement No. 144 than in existing Canadian generally accepted accounting principles (GAAP), and the discontinued operations provisions created a GAAP difference where U.S. and Canadian GAAP were previously consistent. Consistent with its objective of facilitating access by Canadian enterprises to U.S. and global markets by eliminating or minimizing GAAP differences within North America and internationally as appropriate, the AcSB decided to include the disposal of long-lived assets and discontinued operations within the scope of the project. The new standard is based upon the provisions on accounting
G u i d e t o A c c o u n t i n g f o r t h e D i s p o s a l o f L o n g - l i v e d A s s e t s a n d D i s c o n t i n u e d O p e r a t i o n s A n A n a l y s i s o f C I C A H a n d b o o k Se c t i o n 3 4 7 5
for the disposal of long-lived assets by sale or otherwise as well as discontinued operations provisions contained in Statement No. 144. Note that the provisions related to the impairment of long-lived assets are covered in HB 3063, Impairment of Long-Lived Assets. This publication identifies some of the significant issues that an entity faces as it implements HB 3475, and provides KPMGs perspective on the implications and resolution of those issues in a question-and-answer format. November 2004
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Section 2 Scope
The impairment recognition and measurement, presentation and disclosure provisions of HB 3475 related to the disposal of long-lived assets apply to profit-oriented entities. The presentation and disclosure provisions for discontinued operations apply to all entities, that is, both business enterprises and not-for-profit organizations. Not-for-profit organizations would account for the disposal of long-lived assets in accordance with HB 4430, Capital Assets Held by Not-for-Profit Organizations. With the exception of the items identified in the following paragraph, HB 3475 applies to all recognized non-monetary long-lived assets that will be disposed of. HB 3475 applies not only to an individual long-lived asset but also to a group of assets to be disposed of, by sale or otherwise, together as a group or in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction (in this guide, we use asset and group synonymously). Long-lived assets include capital lease assets of lessees, assets of lessors subject to operating leases, proved oil and gas properties that are accounted for using the successful-efforts method of accounting, long-term prepaid assets and intangible assets with finite lives. The provisions of HB 3475 do not apply to: The disposal of goodwill; Impaired loans; Long-term investments, including equity method investments; Oil and gas assets accounted for using the full cost method of accounting; Unproved oil and gas properties accounted for using the successful-efforts method of accounting; and
Servicing assets.
Q1. Do the impairment provisions of HB 3475 apply to oil and gas properties that an entity accounts for using the full-cost method?
Answer. No. The impairment provisions of HB 3475 do not apply to oil and gas properties that are accounted for using the full-cost method. If the full cost method of accounting is being used to account for exploration costs, paragraphs 22 to 28 of AcG-16, Oil and Gas Accounting Full Cost need to be followed for accounting for disposal of properties.
Q2. Are debt issuance costs within the scope of HB 3475?
Answer. No. HB 3475 does not cover debt issuance costs. Debt issuance costs are deferred costs that are a component of the effective interest rate on the associated debt instrument; they are not depreciable or amortizable long-lived assets.
Q3. Does HB 3475 address investments accounted for by the equity method?
Answer. No. Equity method investments are financial instruments, not depreciable or amortizable long-lived assets. Paragraph .02(c) of HB 3475 excludes equity and cost method investments from its scope. An entity evaluates an equity method investment for impairment based on the guidance in paragraphs .20 to .26 of HB 3050, Long-Term Investments. Under that guidance, an investment is impaired if the value of the investment declines and that decline is other than temporary. However, HB 3050 provides little additional guidance on when a decline in value is other than temporary and, if so, how the impairment loss should be measured. We believe that it is acceptable to apply, by analogy, the guidance in HB 3063, Impairment of Long-Lived Assets when evaluating individual equity method investees for impairment.
Q4. Does HB 3475 address when an entity should recognize a liability for costs incurred in connection with a disposal of long-lived assets?
Answer. No. HB 3475 addresses only impairment of long-lived assets, and does not provide any guidance on when a liability should be recognized for costs that will be incurred in connection with the disposal of long-lived assets. Costs associated with a disposal activity include: Costs to terminate an existing contractual obligation, including but not limited to an operating lease; Incremental direct (and other) costs associated with the related disposal activity (such as costs to close or consolidate facilities); and
Termination benefits provided to involuntarily terminated employees pursuant to a one-time benefit arrangement that does not constitute a preexisting or newly created ongoing benefit plan covered by other accounting pronouncements. The question of when a liability should be recognized for the types of costs described above is addressed in EIC-134, Accounting for Severance and Termination Benefits, and EIC-135, Accounting for Costs Associated with Exit or Disposal Activities (including Costs Incurred in a Restructuring).
Section 3 Disposal by Abandonment, or Exchange or Distribution

An entity plans to abandon a long-lived asset in the future.
Under HB 3475, a long-lived asset an entity plans to abandon is disposed of when the entity ceases to use it. That is, the entity continues to classify the asset as held and used until the entity ceases to use it. If an entity plans to abandon an asset before the end of its previously estimated useful life, an entity evaluates the asset for impairment in its held-and-used grouping. If the asset is part of a larger group that passes the recoverability test, the entity cannot write down the asset to its fair value. Rather, the entity must revise the depreciation estimates for the asset in accordance with HB 1506, Accounting Changes, to reflect the remaining expected period of use of the asset. In effect, the entitys only alternative is to depreciate the assets remaining carrying amount less its salvage value, if any, over its remaining expected use period. Paragraph .06 of HB 3475 states that because the continued use of a longlived asset demonstrates the presence of service potential, it would be unusual for a long-lived asset that an entity plans to abandon after a remaining future use period to have a fair value of zero. Therefore, the entity should estimate fair value using a valuation technique that reflects the continued service potential of the asset. However, it is not appropriate to estimate the fair value of an asset that will be abandoned in the future by recognizing an impairment loss that normalizes depreciation expense for the asset over its remaining period of use. If the asset or its group fails the recoverability test, the fact that the entity continues to use the asset indicates that the asset has service potential to the entity. Therefore, it is unlikely that the asset has a fair value of zero at the date of the impairment measurement. In contrast, in some situations there may be idle assets within an asset group that have no service potential and, therefore, a fair value of zero. While management may not have committed to a formal plan to abandon or otherwise dispose of the idle asset, the entity effectively has abandoned the asset because no future service potential exists.
An entity plans to exchange a long-lived asset for a similar productive long-lived asset or to distribute the asset to owners in a spinoff.
HB 3475 specifies that a long-lived asset that will be exchanged for a similar productive long-lived asset or that will be distributed to owners in a spinoff continues to be classified as held and used until the exchange or distribution occurs. If the asset or its group is tested for recoverability prior to the exchange or distribution, estimates of future cash flows in the recoverability test should be developed as if the asset will be held and used for its remaining useful life, that is, assuming that the disposal transaction will not occur. At the date of the exchange or distribution, an entity recognizes an impairment loss for the excess of the carrying amount of the asset over its fair value.
Q11. Should an entity that plans to close two of its manufacturing facilities following the upcoming years production cycle as part of an acquisition-integration plan classify the facilities as held and used or held for sale under HB 3475?
Answer. The entity should classify the facilities as held and used. The entitys need to use the facilities for another production cycle demonstrates that the property is not available for immediate sale as required by paragraph .08(b). Rather, the entity should evaluate the facilities for impairment as assets held and used. If those facilities pass the recoverability test, the entity should review its depreciation estimates and method, and adjust the useful lives of the assets and estimated salvage values.
Q12. If an entity commits to a plan to close a store, should the entity classify the stores long-lived assets as held for sale if a store closure team (a group of employees responsible for executing all store closures) is not available to execute the closure for three months and, in the meantime, the store will continue to operate?
Answer. No. Because the store closure team is not available to execute the closure, the long-lived assets are not available for immediate sale under paragraph .08(b). Even if it locates a buyer, the entity cannot transfer the long-lived assets until the store closure team is available. The long-lived assets do not meet the available-for-immediate-sale criterion until the date that the store closure team becomes available.
Q13. If an entity that is a commercial leasing and financing company intends to sell or lease equipment that recently came off lease, does the equipment meet the condition in paragraph .08(d) if the entity will consider a lease arrangement on the equipment that is classified as an operating lease under HB 3065, Leases?
Answer. No. Paragraph .08(d) requires that the sale of a long-lived asset be probable, and that the entity expects the transfer of the asset to qualify for recognition as a completed sale, within one year. In this example, the entity does not yet know whether the ultimate transaction will be a sale, a lease arrangement (sales-type or direct-finance) in which the equipment is sold or an operating lease (in which case, the equipment remains on the entitys balance sheet); therefore, it cannot classify the equipment as held for sale.
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Q14. Should an entity classify an asset as held for sale if it commits to a plan to sell a property in a sale-leaseback transaction and through the leaseback, the entity as the seller-lessee will retain more than a minor portion of the use of the property?
Answer. No. Paragraph A5 of HB 3475 specifies that an asset that an entity intends to sell in a sale-leaseback transaction does not meet the condition in paragraph .08(d) to be classified as held for sale if the entity will retain more than a minor portion of the use of the property through the leaseback. We believe that guidance prohibits an entity from classifying the asset as held for sale even if the terms of leaseback will qualify as an operating lease under HB 3065 and the transaction otherwise will meet the conditions for sale-leaseback accounting (under EIC-25, Accounting for Sales with Leasebacks, sale-leaseback accounting is a method of accounting for a sale-leaseback transaction in which the seller-lessee records the sale, removes the property from its balance sheet, recognizes a gain or loss on the sale and classifies the leaseback in accordance with HB 3065). Therefore, the entity should classify the property as held and used until the sale-leaseback transaction occurs. HB 3475 does not address how an entity should perform the recoverability test for an asset it intends to transfer in a sale-leaseback transaction. We believe that how an entity will account for the saleleaseback transaction affects the composition of the cash flows in the recoverability test. Typically, an entity structures a sale-leaseback transaction to qualify for sale-leaseback accounting and operating lease classification of the leaseback. Accordingly, the entity will remove the asset that is the subject of the sale-leaseback from its balance sheet when the transaction closes. In that case, we believe that the recoverability test should include cash flows from operations until the sale-leaseback transaction will occur and the selling proceeds for the asset, as determined under EIC-25, Accounting for Sales with Leasebacks (the stated sales price in the transaction adjusted for any offmarket leaseback terms). If the asset fails the recoverability test, the entity writes the asset down to its fair value, as indicated by the terms of the sale-leaseback transaction. If the asset passes the recoverability test, but normal depreciation for the period before the sale-leaseback will result in a loss at the sale-leaseback date, the entity should adjust the depreciation estimates for the asset to eliminate the excess carrying amount over the remaining use period as an owned asset.
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If the entity expects to classify the leaseback as a capital lease, the cash flows that the entity uses in the recoverability test must extend through the term of the leaseback.
Q15. Should a subsidiary classify its long-lived assets as held for sale in its separate financial statements if the subsidiarys parent plans to sell the subsidiary in a stock transaction and has classified the subsidiarys long-lived assets as held for sale in the consolidated financial statements?
Answer. No. In the subsidiarys separate financial statements, the subsidiary should classify its long-lived assets under HB 3063 as assets held and used and perform the recoverability test without regard to the parents plan. The subsidiary is a continuing business and its management has not committed to dispose of any of the assets of the business. From the subsidiarys perspective, its assets still are classified as held and used, even though the subsidiary itself is the subject of a planned sale by the parent. The consolidated entity classifies the subsidiarys long-lived assets as held for sale if it satisfies the six criteria in paragraph .08 of HB 3475.
Q16. Should an entity continue to classify a property as held for sale if, before it obtains a firm purchase commitment, the entity becomes aware of environmental contamination and voluntarily decides to remediate the contamination before it transfers the property to a buyer?
Answer. No. The delay in the timing of the transfer of the property imposed by the entity before it obtains a firm commitment demonstrates that the property is not available for immediate sale. Therefore, the property does not continue to meet the criterion in paragraph .08(b) and the entity should reclassify the property to held and used.
Q17. What is the effect on an entitys ability to classify an asset as held for sale of an unexpected condition that a buyer or other party imposes that will extend the period required to complete the sale beyond one year if an entity already has a firm purchase commitment to sell the asset?
Answer. The entity continues to classify an asset as held for sale if it obtains a firm purchase commitment and the buyer or another party unexpectedly imposes conditions on the transfer of the asset that will extend the period required to complete the sale and (a) the entity has initiated or will initiate on a timely basis actions necessary to respond to
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the change in circumstances and (b) the entity expects a favorable resolution of the delaying factors. For example, a firmly committed buyer performing due diligence on a manufacturing facility may identify environmental damage that was not known to exist when the parties entered into a firm purchase commitment. If the buyer requires that the entity remediate the damage, and that remediation will extend the period required to complete the sale beyond one year, under paragraph .09 of HB 3475, the entity continues to classify the asset as held for sale provided satisfactory remediation of the damage is probable. If the buyer cancels the transaction and the entity reasonably expects that any other potential buyer would impose similar requirements, the asset no longer qualifies as an asset held for sale.
Q18. Should an entity continue to classify an asset as held for sale if the asset has been in that classification for one year, but the entity has been unable to find a buyer because of poor market conditions?
Answer. It depends. The entity must evaluate whether it (a) initiated actions necessary to respond to the poor market conditions during the initial year, (b) continues to actively market the asset at a price that is reasonable in view of market conditions, and (c) continues to meet all of the other criteria in paragraph .08 for classifying the asset as held for sale. For example, the entity would continue to classify the asset as held for sale if the entity continually reduced the selling price for the asset over the past year and intends to adjust the selling price over the next year, as necessary, to find a buyer. In contrast, if the entity now is unwilling to reduce the selling price further on the basis that the market decline for the asset is temporary, the asset is not available for immediate sale as required under paragraph .08(b) of HB 3475. Additionally, paragraph .08(e) requires that an entity market an asset at a price that is reasonable in relation to its current fair value. Therefore, the entity does not meet the conditions for an exception to the one-year requirement in the Section and must reclassify the asset to held and used.
Q19. How do the conditions in paragraph .08 of HB 3475 for classifying an asset as held for sale affect an entitys accounting for foreclosed assets presumed to be held for sale under HB 3025, Impaired Loans?
Answer. HB 3475 effectively nullifies the provisions of old HB 3025, Impaired Loans, on foreclosed assets. HB 3025 addressed the initial accounting for a foreclosure and how an entity should subsequently measure a foreclosed asset. Under the old standard, a rebuttable presumption existed that an entity should account for a foreclosed asset as held for sale on the premise that most entities do not intend to hold foreclosed assets for the production of income. HB 3025 required an entity to measure a foreclosed asset classified as held for sale at the lower of (a) fair value minus estimated costs to sell or (b) cost. HB 3025, before amendments, included specific accounting requirements for foreclosed assets. These were not the same as the accounting for assets held for sale under HB 3475. The AcSB could see no conceptual justification for having different accounting procedures for assets based on how they were acquired, and viewed the existence of different accounting methods for similar assets held for sale as incompatible with the objectives of consistency and transparency. The AcSB consequently decided to amend HB 3025 to make the accounting for foreclosed assets consistent with HB 3475. Thus, the new standard significantly changes the practice for foreclosed assets. Under revised HB 3025, an entity classifies a foreclosed asset as held for sale at the date of foreclosure only if the asset meets the held-forsale conditions in paragraph .08 of HB 3475.
Q20. As a result of circumstances previously considered unlikely, an entity decides not to sell an asset classified as held for sale. At what amount should the entity reclassify the asset back to held and used?
Answer. Paragraphs .23 and .24 of HB 3475 address this question. If a long-lived asset no longer meets the criteria to be classified as held for sale, the entity reclassifies the asset to held and used on the date of the subsequent decision not to sell. The entity reclassifies the asset at the lower of its (a) carrying amount before the asset was classified as held for sale, adjusted for any depreciation expense that would have been recognized had the asset been continuously classified as held and used,
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or (b) fair value at the date of the subsequent decision not to sell. Any required adjustment to the carrying amount of a long-lived asset that is reclassified as held and used is included in income before discontinued operations and extraordinary items in the period of the subsequent decision not to sell. The adjustment is reported in the same income statement caption used to report a loss, if any, recognized for a long-lived asset that is classified as held for sale but is not reported as a discontinued operation. If a component of an enterprise is reclassified as held and used, the results of operations of the component previously reported in discontinued operations are reclassified and included in income before discontinued operations and extraordinary items for all periods presented. The entity also must disclose in the notes to the financial statements that include the period of the retention decision, the facts and circumstances leading to the decision to change the plan to sell the long-lived asset, and the effect on the results of operations for the period and any prior periods presented.
Q21. An entity adopts a formal plan to dispose of substantially all of its assets and the remaining operations are insignificant. May the entity account for the discontinued activities as discontinued operations?
Answer. No. In accordance with EIC-45, Discontinued Operations, the discontinued operations accounting should not be adopted when, as a result of the adoption of a formal plan of disposal, the entity has no substantial continuing operations. The objective of presenting discontinued operations is to segregate the results that have been discontinued from the results of continuing operations. When there are non significant operations, such segregation is not appropriate. If an entity intends to recommence operations in the future but is inactive at the financial statement date, it would not be considered to have substantial continuing operations. However, the entity needs to apply HB 3475 if the criteria in paragraph .08 are met even though the presentation in the financial statements will not follow the requirements of HB 3475.
Section 5 Measurement of an Asset or Disposal Group Classified as Held for Sale

HB 3475 requires an entity to measure an asset (disposal group) classified as held for sale at the lower of its carrying amount at the date the asset initially is classified as held for sale or its fair value less costs to sell. HB 3475 describes costs to sell as the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the enterprise had the decision to sell not been made. Those costs include broker commissions, legal and title transfer fees and closing costs the entity would incur to transfer legal title. Note that if the sale is expected to occur beyond one year, as permitted in limited situations by paragraph .09 of HB 3475, the costs to sell are discounted. HB 3475 also changes the impairment recognition and measurement model in the old Section for a segment of a business. After an entity adopts HB 3475, all asset groups held for sale will be measured at the lower of carrying amount or fair value less costs to sell, including disposal groups that would have qualified as a segment of a business under previous HB 3475. A gain should be recognized for any subsequent increase in fair value less costs to sell, but not in excess of the cumulative loss previously recognized for a write down to fair value less costs to sell required by HB 3475. The fair value less costs to sell measurement in HB 3475 significantly departs from the previous net realizable value measurement in previous HB 3475. Under previous HB 3475, an entity included estimated future operating losses between the measurement date and the disposal date in the measurement of an impairment loss. Under HB 3475, an entity must recognize the results of operations of a disposal group classified as held for sale only in the period in which they occur.
Costs to sell. Because costs to sell include only incremental direct transaction costs, some costs that may have qualified as costs to sell under previous standards no longer qualify under HB 3475. Most notably, costs that were required to be incurred under the terms of a contract for an assets sale as a condition of the buyer, such as expected future losses to continue operations during the holding period, no longer are included in the measurement of an asset held for sale.
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Cessation of depreciation. An entity ceases depreciating a long-lived asset when it reclassifies an asset from held and used to held for sale, even if the asset continues to be used in operations or is part of a disposal group that continues to generate revenues for the entity. The Board reasoned that depreciation should cease even if the asset continues to be used in operations because the decision to sell the asset indicates that the entity intends to recover the assets carrying amount through sale, and not by continuing to use the asset. In other words, the remaining use of the asset in operations is incidental to the recovery of the carrying amount through sale.
Other assets within the disposal group that are not included in the scope of this Section, as well as liabilities, are evaluated in accordance with generally accepted accounting principles prior to determining any write-down of longlived assets within the scope of this Section.
Q22. Does the term costs to sell include amounts that the entity will pay to its employees for finding a buyer or consummating the sale?
Answer. While HB 3475 does not explicitly address this issue, we believe that internal costs (whether one-time or recurring costs) should not be included as costs to sell for purposes of the fair-value-less-costs-to-sell measurement. Only incremental direct costs an entity will pay to an unrelated party should be included as costs to sell.
Q23. When, if ever, is goodwill included in the carrying amount of a heldand-used long-lived asset group under HB 3475?
Answer. When a disposal group is a portion of a reporting unit that constitutes a business, goodwill is allocated to the disposal group and included in its carrying amount prior to determining any write-down.
Q24. How should an entity apply the mechanics of allocating a measured impairment loss to the long-lived assets within an asset group?
Answer. An impairment loss that is required to be recognized under HB 3475 is allocated to only those long-lived assets within the asset group that are included in the scope of the Section. An entity generally allocates a measured impairment loss on a pro rata basis using the relative carrying amounts of those assets. However, the entity should consider whether there are any individual long-lived assets within the group for which fair value can be determined without undue cost and effort and for which fair
value is greater than the adjusted carrying values after the pro rata allocation. If so, the entity increases the adjusted carrying value for that asset to its fair value and allocates the excess impairment loss to the other long-lived assets in the group based on their adjusted carrying values after the preliminary pro rata allocation.
Q25. Should an entity include the accumulated foreign currency translation adjustments (CTA) as part of the carrying amount of its consolidated subsidiary or equity method investment when evaluating the investment for impairment if the entity has committed to a plan to dispose of the investment in a transaction that will cause the CTA to be reclassified to earnings?
Answer. In the US, the EITF addressed this question in EITF Issue No. 01-5, Application of FASB Statement No. 52 to an Investment Being The Emerging Issues Evaluated for Impairment That Will Be Disposed Of. Task Force reached a consensus that if an entity commits to a plan that will cause the CTA for an equity method investment or consolidated investment in a foreign entity to be reclassified to earnings, the entity should include the CTA as part of the carrying amount of the investment when evaluating that investment for impairment. The Task Force also reached a consensus that an entity should include the portion of the CTA that represents a gain or loss from an effective hedge of the net investment in a foreign operation as part of the carrying amount of the investment when evaluating that investment for impairment if it has committed to a plan to dispose of the net investment. The Canadian literature does not address this issue. However, we believe that the above guidance also applies in Canada.
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Section 6 Income Statement Reporting of Discontinued Operations

Paragraph .27 of HB 3475 requires an entity to report in discontinued operations the results of operations of a component of an entity that either has been disposed of or is classified as held for sale if: (a) The operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction, and (b) The entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. Paragraph .28 of HB 3475 states that a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, a component of an entity may be a reportable segment or an operating segment (as those terms are defined in HB 1701, Segment Disclosures, a reporting unit (as that term is defined in HB 3062, Goodwill and Other Intangible Assets), a subsidiary or an asset group (as that term is defined in HB 3063, Impairment of Long-Lived Assets). HB 3475 includes three examples of when a component of an entity that an entity plans to sell does not qualify for discontinued operations: An entity intends to franchise company-owned restaurants. After the entity sells the restaurants to the franchisee, the entity will earn fees and royalties under the franchise agreement. HB 3475 indicates that the franchise agreement is continuing involvement in the cash flows and operations of the restaurants after their sale and, therefore, the entity cannot present the restaurants as discontinued operations. An entity plans to sell a manufacturing facility, however, the entity will source through external parties and continue to market the same products produced in the facility. HB 3475 indicates that the entity should not present the operations of the facility as discontinued operations because the cash flows of the related business will not be eliminated when it sells the facility. An entity (retailer) plans to close two stores in the same region and open a new superstore in that region. HB 3475 indicates that the entity will not eliminate the operations and cash flows of the two retail stores from its ongoing operations and, therefore, the entity should not present the stores as discontinued operations.
An entity must report in discontinued operations, in the period(s) in which they occur, the results of operations of a component of an entity classified as held for sale. If a disposal group qualifies for display as discontinued operations, an entity reports the results of operations of the group for current and prior periods, including any gain or loss on the disposition, as discontinued operations in its income statement. The entity displays the results of discontinued operations, less applicable income taxes (benefit), as a separate component of income before extraordinary items. The requirement to report as discontinued operations a disposal group that meets the definition of a component of an entity if no continuing involvement exists presents many practical challenges. For example, some entities have questioned whether a discontinued operations display provides useful information to the users of the financial statements if dispositions of that type occur in the ordinary course of business, perhaps because the entity has a portfolio of similar assets or operations. Refer to section 9 of this Guide for a discussion of these issues for real estate entities.
Q26. Can a disposal group that does not include assets within the scope of the impairment provisions of HB 3475 (because the impairment of those assets is addressed by other generally accepted accounting principles) be a component of an entity under paragraph 28?
Answer. Yes. Assets or groups otherwise outside the scope of HB 3475 for impairment recognition and measurement may represent a component of the entity and, if the asset or group meets the conditions in paragraph .27 , qualify for discontinued operations display.
Q27. At what date should an entity consider operations to be disposed of (and report the operation as discontinued under HB 3475) if the entitys disposal strategy is to run-off the operation by ceasing to accept new business and contract or regulation obligates the entity to continue to provide services under existing contracts for a specified period?
Answer. For an abandonment of a component of an entity that an entity initiates after adopting HB 3475, we believe that the entity should not report the component as discontinued operations until all operations, including run-off operations, cease.
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Q28. Can a stand-alone equity method investment that an entity sells or otherwise disposes of represent a component of an entity under HB 3475?
Answer. No. In the U.S., the FASB clarified that an entity should not report the disposal of an equity method investment, by itself, as a discontinued operation under Statement No. 144. The scope of HB 3475 excludes long-term investments, including investments in equity securities accounted for by the equity or cost method. Further, the operations related to an equity method investment (that is, the investors share of the earnings or losses of the investee entity) are not sufficient to establish a component of the investor entity as defined in paragraph .27 of HB 3475. (Note that this conclusion is inconsistent with the fact that an equity method investment might be a segment under HB 1701.) However, an entity should report all of the operations of a component in discontinued operations. Therefore, if a component of an entity has operations that include, but are not limited to, operations related to an equity method investment or any other asset excluded from the scope of HB 3475, the total operations of the component should be reported as discontinued operations if it meets the conditions in paragraph .28.
Q29. Does the term component of an entity apply to disposals in the normal course of business, such as sales of commercial real estate properties by a real estate investment trust (REIT) or restaurant locations by a fast-food chain?
Answer. Prior to Statement No. 144, U.S. GAAP had a similar definition of discontinued operations to that in Canada. In their deliberations on Statement No. 144, the FASB observed that disposals that do not meet the definition of discontinued operations might have a significant effect on the enterprises ongoing operations and that broadening the reporting of discontinued operations would improve the information provided to the users. The FASB discussed this issue in response to concerns raised by constituents that Statement No. 144 could require entities to present disposals in the ordinary course of business as discontinued operations. Those constituents believe that displaying routine disposals as discontinued operations could be confusing to financial statement users. In part, those constituents observed that income from continuing operations for prior periods changes each time an entity disposes of or classifies a new component as held for sale. In addition, discontinued operations display of the components current and prior period operating
results suggests a permanent contraction of the entitys business. However, in many cases, the entity intends to invest the proceeds received from the disposition in replacement operations or new realestate properties. The FASB concluded that constituents had not identified new issues creating a need to reconsider the requirements of Statement No. 144. The FASB clarified that a principal objective of Statement No. 144 is to improve the usefulness of reported financial information by broadening the reporting of discontinued operations to include more disposal transactions. Discontinued operations are no longer limited to the disposal of a component of an entitys operations that comprises a separate major line of business and that results from a change in business strategy. However, the FASB reiterated that an entity is not required to apply the requirements of Statement No. 144 for reporting discontinued operations to immaterial items. The FASBs position on this issue represents a reversal of its position in the Exposure Draft that preceded Statement No. 144. Under that Exposure Draft, discontinued operations would have included only significant components of an entity and would have distinguished a disposal of a significant component of an entity from activities incident to the evolution of the business. While the FASB addressed this issue in the context of property sales by REITs, we do not believe that the FASB answer on the issue is industry-specific. Refer to section 9 of this Guide for further discussion. We believe that GAAP in Canada in consistent with U.S. GAAP in this regard.
Q30. How should an entity assess whether a disposition of a component of an entity is sufficiently immaterial not to require presentation as a discontinued operation?
Answer. We believe that an entity should consider all aspects of the components effect on the entitys financial statements when evaluating whether the component of an entity is sufficiently immaterial not to require presentation as discontinued operations, assuming that the group otherwise meets the other conditions in HB 3475 for that reporting. The entity should consider the relationship to the same measures for the total entity in the current and past periods presented in the entitys financial statements of the components revenue, gross profit, operating income,
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net income and total assets. We believe that the evaluation should include the effect of the gain or loss on the sale of the component. We also believe that the only operational approach to evaluating whether a disposal is sufficiently immaterial is for an entity to perform the assessment on a disposition-by-disposition basis. However, any single evaluation should consider the degree of frequency of similar dispositions the entity expects in future periods.
Q31. Can a component of an entity be smaller than an asset group to which the entity applies the provisions of HB 3475 for evaluating impairment of assets held and used?
Answer. No. While HB 3475 does not specifically address this question, we believe that the Section does not support a conclusion that a component of an entity can be a level lower than the entitys groups for assets held and used. Paragraph .03 (a) implicitly states that the unit of accounting for a longlived asset is its group, and that an asset group held and used represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups. Paragraph .28 of HB 3475 states that a component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Thus, if a disposal involves less than a held-for-use asset group, the disposal asset or unit cannot meet the definition of a component of an entity. That is, if the asset did not have largely independent cash flows under HB 3063 for purposes of determining the held-for-use grouping policy, it is highly unlikely that the asset comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
Q32. Do the provisions of HB 3475 on the reporting of discontinued operations apply to dispositions of oil and gas properties with identifiable cash flows if the entity uses the full-cost method of accounting?
Answer. In accordance with AcG-16, Oil and Gas Accounting Full Cost, a disposal of a sub-set of properties within a cost centre (oil and gas activities of an enterprise within the geographical boundaries of a country; there should be one and only one cost centre for each country in which
an enterprise has oil and gas activities) should not be presented as a discontinued operation as it will not meet the definition of a component, as defined in paragraph .28 of HB 3475. A disposal of an entire cost centre would meet the definition of a component and should be presented as a discontinued operation in accordance with HB 3475.
Q33. If an entity reports a component of an entity as discontinued operations, should the entity allocate general corporate overhead expenses to that component in its separate display?
Answer. The EIC is developing a Draft Abstract to replace EIC-45. The Draft (numbered D43, Discontinued Operation Allocation of Interest and Other Accounting Matters) is based on EITF 87-24, Allocation of Interest and Other Accounting Matters. Issue 2 of the Draft Abstract is as follows: Should general corporate overhead be allocated to discontinued operations? At its August 2004 meeting, the Committed reconfirmed its consensus reached previously that general corporate overhead expenses should not be allocated to discontinued operations. In the U.S., the EITF addressed this question in connection with discontinued operations reporting for segments of a business under Opinion 30. In EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations, the EITF reached a consensus that an entity should not allocate general corporate overhead to discontinued operations. The FASB staff has expressed its view that the answer in Issue 87-24 is a relevant interpretation for discontinued operations reporting under Statement No. 144. Given the tentative consensus reached by the EIC and FASB staff views on the subject, we believe that general corporate overhead expenses should not be allocated to discontinued operations under Canadian GAAP .
Q34. If an entity makes a subsequent decision to retain a disposal group or component classified as held for sale and reported as discontinued operations, how should the entity adjust its current and prior period income statements?
Answer. HB 3475 does not permit an entity to restate the financial statements of a prior reporting period. That is, any impairment losses recognized in that prior period while the asset was classified as held for sale are not adjusted based on how the asset would have been accounted for had it remained classified as held and used. In the reporting period that includes the entitys decision to retain the disposal group or
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component, the entity reclassifies the results of operations of the component in the prior period(s) (presented for comparative purposes) from discontinued operations to continuing operations.
Q35. How is a long-lived asset or a disposal group accounted for if the criteria are met after the balance sheet date but before issuance of financial statements?
Answer. The long-lived assets or the disposal group continue to be classified as held and used in those financial statements and the following information should be presented in the notes to financial statements: a description of the facts and circumstances leading to the disposal or expected disposal, the expected manner and timing of the disposal, and, the carrying amount(s) of the major classes of assets and liabilities included as part of a disposal group. The entity should also consider the requirements under HB 3820, Subsequent Events. In a registration statement, pro forma financial statements should be presented to give effect to the actual or probable disposition, if significant.
Q36. How should an entity present earnings per share if it reports discontinued operations under HB 3475?
Answer. The entity should report basic and diluted earnings per share data for income from continuing operations, income from discontinued operations and net income. HB 3475 did not amend HB 3500, Earnings per Share. Paragraph .61 of HB 3500 requires an entity to present basic and diluted earnings per share data for income from discontinued operations (and extraordinary items) either on the face of the income statement or in the notes to the financial statements. Paragraph .60 of HB 3500 requires that an enterprise present basic and diluted per share data for income from continuing operations and net income on the face of the income statement.
Q37. How should an investor report in its income statement its share of a discontinued operation that the investee reports in its separate financial statements?
Answer. Paragraph .14 of HB 3050 requires that the investors proportionate share of any discontinued operations, extraordinary items, changes in accounting policy, corrections of errors relating to prior period financial statements or capital transactions of the investee are disclosed separately, according to their nature, in the investors financial statements.
Q38. How should an entity that reports a majority-owned subsidiary as a discontinued operation present the minority shareholders portion of the subsidiarys earnings (the entity previously presented the minority shareholders portion of the subsidiarys earnings as a minority interest charge in its consolidated income statement)?
Answer. The entity should include the minority interest charge as part of discontinued operations for the income statement periods presented. The minority interest charge was a component of the entitys income from the subsidiarys operations and should be included in the discontinued operations display along with the consolidated revenues and expenses of the majority-owned entity that previously also were included in income from continuing operations.
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Section 7 Reporting Impairment Losses on Assets Held and Used and Disposal Gains or Losses in Continuing Operations
HB 3475 requires an entity to report impairment losses on assets held and used and disposal losses and adjustments thereto for assets or groups that did not qualify as discontinued operations as a component of income or loss from continuing operations before income taxes. Therefore, if an entity presents a subtotal such as income from operations, it must include the amount of the impairment or disposal loss and adjustments thereto (for assets held for sale) in that subtotal.
Q39. How should an entity classify in its income statement a gain that it recognizes on the sale or other disposal of a long-lived asset or group not reported as discontinued operations?
Answer. The financial statements should disclose, if not separately presented on the face of the income statement, the amount of gain or loss on disposal and the caption in the income statement that includes that gain or loss.
Section 8 Balance Sheet Presentation and Disclosure of Composition of a Disposal Group Classified as Held For Sale
EIC-41, Presentation of Assets and Liabilities Held for Disposal, did not permit an entity to offset the assets and liabilities of a segment of a business for which the entity had committed to a plan of disposal. That is, the assets and liabilities the entity expected to transfer in the disposal were not offset and presented as a single-line item in the entitys balance sheet. Similarly, HB 3475 requires an entity to present a long-lived asset classified as held for sale separately in the balance sheet. The Section also requires an entity to present separately in the asset and liability sections, respectively, of the balance sheet, the assets and liabilities of a disposal group classified as held for sale. Paragraph .37(a) of HB 3475 requires an entity to disclose either on the face of the balance sheet or in the notes to the financial statements the major classes of assets and liabilities classified as held for sale.
Q40. Should an entity classify assets and liabilities of a disposal group held for sale as current or noncurrent in the balance sheet?
Answer. Guidance on this point is provided in paragraph .35 of HB 3475 which states that long-lived assets classified as held for sale would not be reclassified as current assets, unless the enterprise has sold the assets prior to the date of completion of the financial statements and the proceeds of the sale will be realized within a year of the date of the balance sheet or within the normal operating cycle if that is longer than a year. If the assets have been classified as current assets due to subsequent sale, any liabilities to be assumed by the purchaser or required to be discharged on disposal of the assets would be classified as current assets.
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Section 9 Issues Related to Discontinued Operations Reporting For Real Estate Entities
Real estate entities have various types of property dispositions that raise questions about whether the disposition qualifies for reporting as a discontinued operation under HB 3475. The dispositions that are discussed herein address properties or entities that have identifiable cash flows that are largely independent of other assets and, therefore, represent an asset group under HB 3475. While Questions 46 through 48 arise frequently for - and thus are framed in terms - of real estate entities, they have broader applicability beyond the real estate industry.
Q41. Should a build-to-suit property that was constructed for a known buyer under a contract whereby the entire purchase price of the property was funded at closing be reported as a discontinued operation?
Answer. No. The costs incurred under the contract are similar to inventory costs. HB 3475 did not amend or nullify HB 3030, Inventories, which provides authoritative guidance on inventory impairment. HB 3400, Revenue, provides guidance about how a contractor should account for performance under the contract. HB 3475 does not affect properties constructed pursuant to contracts with unrelated parties that are accounted for under completed contract or the percentage of completion methods or the manufacture of goods for sale accounted for under HB 3030.
Q42. An entity constructs a building that it classifies as held for sale when construction is complete. The entity sells the building within a relatively short time (for example, three months) of completing the construction but before leasing any of the space to tenants, and has no continuing involvement with the operations of the building after the sale. Should the entity report the building as a discontinued operation when it classifies the building as held for sale?
Answer. No. The building does not qualify as a component of an entity under paragraph .28 of HB 3475 because the building has no associated revenues at the time it is classified as held for sale. In addition, no revenues commenced during the holding period. Therefore, the building does not have operations, as that term is used in paragraph .28 of HB 3475. This conclusion presumes that costs incurred and charged to the income statement during the holding period for the building are insignificant.
Q43. An entity constructs a commercial office building with the intent of selling its full interest in the building after tenants occupy a significant percentage of the space. The entity is successful in attracting tenants quickly and within three months has leased approximately 70 percent of the building. The entity begins to search for a buyer. Three months later, the entity finds a buyer and shortly thereafter sells its entire interest in the building; it has no continuing involvement with the operations of the building after the sale. The entity met the requirements in paragraph .08 of HB 3475 for held-for-sale classification just before it sold the building and, as a result, depreciated the building for a short period. Should the entity report the building as a discontinued operation when it is classifies the building as held for sale?
Answer. Yes. The entity should report the building as a discontinued operation from the date the building is classified as held for sale because the requirements in paragraphs .27 and .28 of HB 3475 are met. The building meets the definition of a component of an entity as the cash flows from the property can be clearly distinguished from the rest of the entity. The operations and cash flows of the component have been eliminated and the entity will have no continuing involvement with the buildings operations after the sale. Discontinued operations reporting is not required, however, if the disposition is immaterial to the entity. Refer to Question 30 for a discussion of materiality.
Q44. In a variation on the fact pattern in Question 43, the entity met the requirements in paragraph .08 of HB 3475 for held-for-sale classification at the time the building was ready for tenants and, as a result, the entity did not depreciate the building during the time that the building was being leased up. Should the entity report the building as a discontinued operation when it classifies the building as held for sale?
Answer. Yes. The entity should report the building as a discontinued operation when it classifies the building as held for sale for the same reasons discussed in the response to Question 43. Only the timing of that classification as held for sale is different. That is, the building is classified as held for sale at the time construction is complete, whereas in Question 43, the held-for-sale classification did not occur until later.
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Q45. An entity buys a building that it intends to refurbish while it is leased to tenants, and then sell. Shortly after the refurbishment is complete, the entity sells its entire interest in the building to an unrelated party and has no continuing involvement with the operations of the building after the sale. The entity met the requirements in paragraph .08 of HB 3475 for held-for-sale classification just before it sold the building and, as a result, it depreciated the building from the date of acquisition until the date the building qualified as held for sale. Should the entity report the building as a discontinued operation when it classifies the building as held for sale?
Answer. Yes. The entity should report the building as a discontinued operation from the date the building is classified as held for sale because the requirements in paragraphs .27 and .28 of HB 3475 are met. The building meets the definition of a component of an entity, as the cash flows from the property can be clearly distinguished from the rest of the entitys operations. After the sale occurs, the operations and cash flows of the component are eliminated and the entity has no continuing involvement with the operations of the building. Discontinued operations reporting is not required, however, if the disposition is immaterial to the entity. Refer to Question 30 for a discussion of materiality.
Q46. Should an entity that sells a majority of its interest in a previously controlled (consolidated) entity whose primary asset is a commercial office building report the building as a discontinued operation if it accounts for the retained minority interest in the entity using the equity method?
Answer. No. The disposition of a majority of an interest in a previously controlled or wholly-owned entity does not qualify for discontinued operations reporting if the retained minority interest provides the seller with significant influence over the transferred entity. That is, the conditions in paragraph .27 of HB 3475 are not met because the entity will continue to have cash flows from its retained interest and will continue to be involved with the operations of the building through its position of significant influence.
Q47. Should an entity that sells a majority of its interest in a previously controlled (consolidated) entity whose primary asset is a commercial office building report the building as a discontinued operation if it accounts for the retained minority interest in the entity under the cost method?
Answer. The answer depends on the materiality of the expected future cash flows from the retained minority interest. If expected future cash flows clearly are significant to the entity, then the entity should not report the disposition as a discontinued operation. If those cash flows clearly will be insignificant, the disposition should be reported as a discontinued operation. Judgment will be required to determine the appropriate reporting.
Q48. Should a real estate entity that sells a building (either new construction or a building that it previously operated) to an equity method investee report the building as a discontinued operation?
Answer. No. The entity should not report the building as a discontinued operation because the seller has continuing involvement with the building through its equity method investment in the buyer. That is, the conditions in paragraph .27 of HB 3475 are not met because the entity will continue to participate in the cash flows from the building through its investment in the buyer and will continue to be involved with the operations of the building through its position of significant influence.
Q49. Should a real estate entity that sells its entire interest in a building (either new construction or a building that it previously operated) to an unrelated third party concurrent with entering into an agreement to manage the building for the new owner for a fee commensurate with current market conditions report the building as a discontinued operation?
Answer. No. Even though the entity sold its entire interest in the building, it has not eliminated the cash flows associated with the building from its ongoing operations and has significant continuing involvement in the buildings operations after the sale through the management agreement. Accordingly, the entity should not report the building as a discontinued operation because the conditions in paragraph .27 are not met.
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In situations in which there is continuing involvement, all facts and circumstances need to be analyzed to determine the appropriate reporting. Discontinued operations reporting would be appropriate if the management agreement was only for a short period of time (such as 30 days) and the continuing involvement was eliminated within 12 months from the date at which the entity classified the building as held for sale. In that case, the entity would report the building as a discontinued operation when the management agreement terminated.
Section 10 Transition
HB 3475 applies to disposal activities initiated by an enterprises commitment to a plan on or after May 1, 2003. Early application is encouraged. An entity that elects early adoption applies the Recommendations of this Section retroactively to the beginning of its current fiscal year and restates prior interim data of that year. Long-lived assets classified as held for disposal as a result of disposal activities that were initiated before the initial application of the Section continue to be accounted for and displayed in the entitys income statement in accordance with prior pronouncements applicable to that disposal. Therefore, an entity will not report discontinued operations for asset groups initially classified as held for sale under previous requirements of HB 3475 that the entity sells after it adopts HB 3475. An asset or disposal group that is not accounted for as held and used at the date of initial application of HB 3475 is reclassified as held and used in accordance with paragraph .23 if the six criteria in paragraph .08 are not met by the end of the fiscal year in which HB 3475 initially is applied. Any gain or loss is reported in income before discontinued operations.
Q50. Should an entity that reported discontinued operations under HB 3475 before its amendment for an operation being abandoned through runoff reclassify the operations to continuing operations in its income statement if the conditions in paragraph .08 of HB 3475 are not met at the end of the fiscal year of adoption?
Answer. No. The one-year transition provision in paragraph .42 of HB 3475 does not apply to an abandonment involving a segment of a business reported as discontinued operations under HB 3475, before amendments, when the entity is effecting the abandonment through a run-off of operations. Therefore, the entity continues to report the segment as discontinued operations under HB 3475, before amendments, for the remaining run-off period.
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Acronyms Defined
AcG AcSB AICPA CEO CICA CON EIC EITF FASB GAAP HB IASB SAB SEC SOP US
Accounting Guideline (CICA) Accounting Standards Board (CICA) American Institute of Certified Public Accountants Chief Executive Officer Canadian Institute of Chartered Accountants Statement of Financial Accounting Concepts Emerging Issue Committee Emerging Issue Task Force (FASB) Financial Accounting Standard Board (U.S.) Generally Accepted Accounting Principles Handbook Section (CICA) International Accounting Standards Board Staff Accounting Bulletin (U.S.) Securities Exchange Commission Statement of Position United States
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Guide to Accounting for the Disposal of Long-lived Assets and Discontinued Operations

An Analysis of CICA Handbook Section 3475

Investor Income Statement Presentation of Discontinued Operations of an Equity Method Investee

Q2. Are debt issuance costs within the scope of HB 3475?

Section 3 Disposal by Abandonment, or Exchange or Distribution

Section 5 Measurement of an Asset or Disposal Group Classified as Held for Sale

Section 6 Income Statement Reporting of Discontinued Operations

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