What Qualifies for Discontinued Ops Treatment?

1
What Qualifies for Discontinued Ops Treatment?

• Statement No. 144 broadens ABP 30 presentation to
  apply to a component of an entity rather than a
  segment of a business.
• a component of an entity comprises operations and
  cash flows that clearly can be distinguished,
  operationally and for financial reporting
  purposes, from the rest of the entity.
• Examples
• a reportable segment (as defined in APB 30),
• an operating segment (as defined in Statement No.
  131),
• a reporting unit (as defined in Statement No.
  142),
• an asset group (as defined in Statement No. 144).

2
Criteria for Discontinued Operations Financial
Statement Classification

• Statement No. 144 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
  two conditions are met
• (1) 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
• (2) the entity will not have any significant
  continuing involvement in the operations of the
  component after the disposal transaction.

3
FAS 144 Criteria for Held for Sale

• 1. Management commits to a plan to sell.
• 2. The asset (disposal group) is available for
  immediate sale in its present condition.
• 3. The entity initiates an active program to
  locate a buyer.
• 4. The entity believes that the sale of the asset
  (disposal group) is probable, and it expects to
  record the transfer of the asset (disposal group)
  as a completed sale within one year
• 5. The entity actively is marketing the asset
  (disposal group) for sale at a price that is
  reasonable in relation to its current fair value.
• 6. Actions required to complete the plan indicate
  that it is unlikely that significant changes to
  the plan will be made or that the plan will be
  withdrawn.

4
Income Statement Requirements for Discontinued
Operations

• the income statement must report in discontinued
  operations the results of operations of the
  component, including any gain or loss recognized
  as a result of measuring at fair value assets
  held for sale.
• 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.
• This is a significant departure from the previous
  measurement criteria of discontinued operations.
• The results of discontinued operations are
  reported, less applicable income taxes (benefit),
  as a separate component of income before
  extraordinary items and the cumulative effect of
  accounting changes (if applicable).
• An entity must disclose a gain or loss on
  disposal either on the face of the income
  statement or in the notes to the financial
  statements.

5
Balance Sheet Measurement

• Statement No. 144 measures an asset (disposal
  group) that is classified as held for sale at the
  lower of its carrying amount or fair value less
  costs to sell.
• A long-lived asset that is classified as held for
  sale is not depreciated during the holding
  period.
• Statement No. 144 describes costs to sell as the
  incremental direct costs to transact a sale,
  including
• broker commissions,
• legal and title transfer fees,
• and closing costs