DISCONTINUED OPERATIONS

 PFRS 5, Appendix A: discontinued operation is a component of an entity that either has been
disposed of or is classified as held for sale, and:
o Represents a major line of business or geographical area of operations
o Part of a single coordinated plan to dispose a separate major line of business or geographical
area of operations
o Subsidiary acquired exclusively with a view to resale

Component of an entity
 May be a subsidiary, a major line of business or geographical segment whose operations and cash
flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of
the entity
o Can be clearly distinguished if assets and liabilities and revenue and expenses are directly
attributable to the component
o Directly attributable if would be eliminated when the component is disposed of
 Discontinued operation occurs when the operations and cash flows of that component have been or
will be eliminated from the ongoing operations of the entity and the entity will have no significant
continuing involvement in that component after disposal

Timing of reporting
 Component of an entity is classified as discontinued operation at the date:
o Entity has actually disposed of the operation
o Operation meets the criteria to be classified as held for sale
 PFRS 5, p. 12: prohibits retroactive classification as a discontinued operation when the discontinued
criteria are met after the end of reporting period
o Entity shall not classify the DO as held for sale in the current FS if discontinued criteria are
met after end of reporting period

Component classified as held for sale

 Classified as held for sale if CA will be recovered principally through sale rather than continuing use
 Component must be available for immediate sale in the present condition, and sale must be highly
probable
 “disposal group classified as held for sale”

Examples of DO
 Selling by a diversified entity of a major division that represents the entity’s only activities in the
electronics industry
 Selling by a meat packing entity of controlling interest in a furniture entity
 Selling by a communications entity of all its radio stations
 Selling of any of the businesses of a conglomerate that is engaged in a commodity business, real
estate, manufacturing and construction business

Not examples of DO
 Phasing out of product line within a product group
 Shifting of production or marketing activities for a particular line of business from one location to
another
 Closing of a facility, factory or branch to achieve productivity improvement or other cost saving
Income statement presentation
 PFRS 5, p. 33: an entity shall disclose a single amount comprising the total of post-tax profit or loss of
the discontinue operation and the post-tax gain or loss recognized on the measurement to FV less
cost of disposal or on the disposal of the assets or disposal group constituting discontinue operation
a. Income or loss from DO, net of tax, shall be presented as a single amount in the income
statement below the income from continuing operations

Disclosures about DO
a. Amount of revenue, expenses and income or loss attributable to the DO, and the related income tax
b. Any impairment loss recognized (FVLCD < CA of net assets, expected gain not recognized but
disclosed)
c. Gain or loss from actual disposal of assets and settlement of liabilities of DO (recognized on date of
sale or date of settlement as part of DO)
d. Termination cost of employees and other costs which are directly incurred as a result of
discontinuance (shown as part of DO)

 PFRS 5, p. 34: if a disposal group is classified as held for sale in the current year, the results of the
disposal group for prior period shall be re-presented as relating to discontinued operation in the
comparative figures for the current year’s IS

Presentation in SFP
 PFRS 5, p. 38: an entity shall also present separately on the face of SFP the following information:
a. Assets of the component held for sale separately from all other assets
b. Assets of the component held for sale measured at LOWER of FVLCD and CA
c. Liabilities of the component separately from all other liabilities
d. Non-depreciation – noncurrent assets of the component held for sale shall not be
depreciated
 PFRS 5, p.3: assets of the component shall be presented as a single amount under current assets and
the liabilities of the component shall be presented as a single amount under current liabilities
(cannot be offset)
 PFRS 5, p. 40: if a disposal group is classified as held for sale in the current year, an entity shall not
reclassify or re-present the assets and liabilities of the disposal group for the prior period to reflect
the “held for sale” classification in the SFP as of the end of the current reporting period (presentation
of the assets and liabilities in the prior period is not changed)

Cash flow presentation

 PFRS 5, p. 33: the net cash flows attributable to the operating, investing and financing activities of a
DO shall be separately presented in the SCF or disclosed in the notes

Abandoned DO
 PFRS 5, p. 13: prohibits NCA that will be abandoned from being classified as held for sale
 Standard provides that if the assets to be abandoned are a major line of business or geographical
area of operations, they are reported in DO at the date on which they are ACTUALLY abandoned

Sales xx Note:
Less: Cost of sales xx
Gross income xx Sales – DO xx
Less: Expenses xx Less: Cost of sales xx
Income before tax xx Gross income xx
Less: Income tax expense xx Less: Expenses xx
Income from continuing operations xx Less: Impairment loss xx
Income from discontinued operation, net of tax (Note) xx Less: Employee termination cost xx
Net income xx Less: Income tax expense xx
Income from discontinued operation xx