Discontinued-operation presentation is narrower than a sale, closure, or plan to leave an activity. The entity must first identify a component or group whose operations and cash flows can be distinguished for operating and reporting purposes.
ASC 205-20-45-1B then requires the disposal to represent a strategic shift that has, or will have, a major effect on operations and financial results. ASC 205-20-45-1C offers examples: a major geographical area, major line of business, major equity method investment, or another major part of the entity.
The word major requires evidence. Closing eleven of nine hundred similar stores is different from selling an entire pharmacy business or leaving every operation in a country. No single percentage, board label, or management phrase settles the conclusion. Preserve the component population, internal reporting, products, geography, assets, liabilities, revenue, expenses, continuing involvement, and effect on future operations.
The strategic-shift conclusion controls presentation; transaction guidance still controls recognition and measurement. When those amounts stay fixed, the classification changes income from continuing operations rather than total net income. ASC 205-20-45-3 governs current- and prior-period presentation of the discontinued operation. Held-for-sale balance-sheet presentation and later adjustments require their own dated analysis.
The disposal lesson now teaches all three encounters. Compare the event-routing example with the formative store-closure task.
Put the concept to work
Understand this concept
- State the condition a disposal must meet to be reported as a discontinued operation, and name the examples the guidance offers of a major effect.
Apply this concept
- Apply the strategic-shift condition to a described disposal and conclude whether the component is reported in continuing or in discontinued operations.
Analyze this concept
- Argue both sides of a disposal that sits near the boundary, using the size, the line of business, and the geography of what was disposed, and state what the classification does to income from continuing operations.
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Build on these ideas
- Discontinued operation — Analyze
To analyze this concept: Required. The consequence is a presentation decision on the income statement.
- Discontinued operation — Understand
To understand this concept: Required. The test decides whether the discontinued-operation presentation applies.
- Held-for-sale long-lived asset — Understand
To apply this concept: Helpful. A planned disposal must also meet the held-for-sale criteria.
Show 2 more prerequisites
- Strategic shift — Apply
To analyze this concept: Required. Defending a call requires being able to make one.
- Strategic shift — Understand
To apply this concept: Required. Running the test requires stating it.
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Show 1 more related concepts
Use this idea next
- Strategic shift — Analyze
Required level here: apply. Required. Defending a call requires being able to make one.
- Strategic shift — Apply
Required level here: understand. Required. Running the test requires stating it.
Used in these readings
These chapters explain or apply this concept. The label states how the chapter uses it.
- ACC 300: Discontinued operations Use now