Discontinued Operations and HFS

Discontinued Operations

Reported separately to distinguish between ongoing profits and future profits ceasing to exist

IFRS 5 - component of entity disposed of or is classified as HFS (Value recovered by sale)

Discontinued operation criteria (1 of 3)

1. Separate line of business or geographical area

2. Part of single coordinated plan to dispose of distinct line or area

3. is a subsidiary acquired for re-sale

Determining componentization (2)

1. Can operations and cash flows be clearly distinguished

   1. Consider line of business (customers, suppliers) and rev/exp of each

2. Determine if component is discontinued - 1 of 3 criteria

Measurement of discontinued operations

Measure at lower of:

• CV

• FV - cost of disposal (if not sold)

Losses recognized in income

Presentation and disclosure of discontinued operations

NCA presented separate on B/S

Report single amount of post-tax profit/loss and gain/loss on I/S

Note disclosure required for HFS

• Description, circumstances, classification changes

NCA HFS

HFS to have CV recovered through sale rather than use

HFS classification (all 3 met)

1. Asset must be available for immediate sale

2. Terms of sale must be usual or customary

3. Sale must be highly probable

   1. Mgmt committed to sale

   2. Active program to find buyer

   3. Actively marketed at reasonable price

   4. sale expected within one year (can be waived)

   5. unlikely of sig. changes to plan

Initial measurement of HFS

Measure at lower of CV and FV - cost of disposal (if not sold)

• Impairment loss if FV less costs < CV recognized in income

no gain on initial measurement

HFS depreciation

Depreciation ceases once classified as HFS

HFS JE

Derecognize asset and recognize HFS asset

• Dr. HFS asset

• Dr. Impairment loss

• Dr. Acc. Dep

  • Cr. Asset

Subsequent measurement of HFS

If FV - costs of disposal are increased, asset can be written up to extent of impairment losses taken

• max up to CV

• Dr. HFS asset

  • Cr. Reversal of impairment loss

Derecognition of HFS assets

Results in a gain or loss, net of tax, recognized in the I/S

• Dr. Cash

• Dr/Cr. Loss/gain

  • Cr. HFS asset

Abandoned assets

Remain on the B/S as LT assets

Write down to NRV on abandonment and stop depreciating

Can be classified as HFS asset

ASPE HFS

Distributions to owners do not classify as HFS

Reversal only applies to losses after period classified as HFS

NCA HFS reported as NC until sold then become current