DISCONTINUED OPERATION

Summary of IAS 35
Objective of IAS 35
The objective of IAS 35 is to establish principles for reporting information
about discontinuing activities (as defined), thereby enhancing the ability of
users of financial statements to make projections of an enterprise's cash
flows, earnings-generating capacity and financial position, by segregating
information about discontinuing activities from information about continuing
operations. The Standard does not establish any recognition or
measurement principles in relation to discontinuing operations these are
dealt with under other IAS. In particular, IAS 35 provides guidance on how
to apply IAS 36 Impairment of Assets and IAS 37 Provisions, Contingent
Liabilities and Contingent Assets to a discontinuing operation. [IAS 35.1719]
Discontinuing operation defined
A relatively large component of a business enterprise such as a business or
geographical segment under IAS 14 Segment Reporting that the
enterprise, pursuant to a single plan, either is disposing of substantially in its
entirety or is terminating through abandonment or piecemeal sale. [IAS
35.2] A restructuring, transaction or event that does not meet the definition
of a discontinuing operation should not be called a discontinuing operation.
[IAS 35.43]
When to disclose
Disclosures begin after the earlier of the following:
the company has entered into an agreement to sell substantially all of

the assets of the discontinuing operation; or

its board of directors or other similar governing body has both
approved and announced the planned discontinuance. [IAS 35.16]

The disclosures are required if a plan for disposal is both approved and
publicly announced after the end of the financial reporting period but before
the financial statements for that period are approved. A board decision after
year-end, by itself, is not enough. [IAS 35.29]

What to disclose
The following must be disclosed: [IAS 35.27 and IAS 35.31]
a description of the discontinuing operation;

the business or geographical segment(s) in which it is reported in

accordance with IAS 14;

the date that the plan for discontinuance was announced;
the timing of expected completion, if known or determinable;
the carrying amounts of the total assets and the total liabilities to be

disposed of;
the amounts of revenue, expenses, and pre-tax operating profit or

loss attributable to the discontinuing operation, and (separately)

related income tax expense;
the amount of gain or loss recognised on the disposal of assets or

settlement of liabilities attributable to the discontinuing operation, and

related income tax expense;
the net cash flows attributable to the operating, investing, and

financing activities of the discontinuing operation; and

the net selling prices received or expected from the sale of those net
assets for which the enterprise has entered into one or more binding
sale agreements, and the expected timing thereof, and the carrying
amounts of those net assets.

How to disclose
The disclosures may be, but need not be, shown on the face of the financial
statements. Only the gain or loss on actual disposal of assets and settlement
of liabilities must be on the face of the income statement. [IAS 35.39] IAS
35 does not prescribe a particular format for the disclosures. Among the
acceptable ways:
Separate columns in the financial statements for continuing and

discontinuing operations
One column but separate sections (with subtotals) for continuing and

discontinuing operations within that single column

One or more separate line items for discontinuing operations on the
face of the financial statements with detailed disclosures about
discontinuing operations in the notes (but the line-item disclosure

requirements of IAS 1 Presentation of Financial Statements must still

be met).
In periods after the discontinuance is first approved and announced, and
before it is completed, the financial statements must update the prior
disclosures, including a description of any significant changes in the amount
or timing of cash flows relating to the assets and liabilities to be disposed of
or settled and the causes of those changes. [IAS 35.33]
The disclosures continue until completion of the disposal, though there may
be cash payments still to come. [IAS 35.35-36]
Comparative information presented in financial statements prepared after
initial disclosure must be restated to segregate the continuing and
discontinuing assets, liabilities, income, expenses, and cash flows. This helps
in trend analysis and forecasting. [IAS 35.45]
IAS 35 applies to only to those corporate restructurings that meet the
definition of a discontinuing operation. But many so-called restructurings are
of a smaller scope than an IAS 35 discontinuing operation, such as plant
closings, product discontinuances, and sales of subsidiaries while the
company remains in the same line of business. IAS 37 on provisions
specifies the accounting and disclosures for restructurings.
The specified disclosures are required to be presented separately for each
discontinuing operation. [IAS 35.38]
Income and expenses relating to discontinuing operations should not be
presented as extraordinary items. [IAS 35.41]
Notes to an interim financial report should disclose information about
discontinuing operations. [IAS 35.47]