Discontinued Operations and Held-for-Sale Assets
- Graziano Stefanelli
- 2 days ago
- 3 min read
Discontinued operations and assets held for sale represent components of an entity that have been, or will be, disposed of in a manner that significantly alters the entity’s operations and financial results. Proper identification, measurement, and presentation of these items are necessary to distinguish ongoing performance from the effects of major disposals or shutdowns, providing more transparent and decision-useful information to users of financial statements.
Definition of Discontinued Operations
A discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale, and:
Represents a separate major line of business or geographical area of operations, or
Is part of a single coordinated plan to dispose of such a line or area, or
Is a subsidiary acquired exclusively with a view to resale.
A component may be a segment, reporting unit, operating division, or subsidiary.
Classification as Held-for-Sale
A non-current asset (or disposal group) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Criteria for held-for-sale classification include:
Management commits to a plan to sell.
The asset is available for immediate sale in its present condition.
An active program to locate a buyer is initiated.
The sale is highly probable and expected to be completed within one year.
The asset is actively marketed at a reasonable price.
Actions required to complete the sale are unlikely to change significantly.
Measurement of Held-for-Sale Assets
Upon classification as held for sale:
The asset (or disposal group) is measured at the lower of carrying amount and fair value less costs to sell.
Depreciation or amortization ceases.
Any initial or subsequent write-down to fair value less costs to sell is recognized in profit or loss as an impairment loss.
If fair value less costs to sell subsequently increases, the loss may be reversed (but not in excess of the cumulative impairment previously recognized).
Presentation and Disclosure: Discontinued Operations
Results of discontinued operations are presented separately in the income statement, net of tax, below income from continuing operations.
The income statement includes:
Post-tax profit or loss of discontinued operations for the period.
Post-tax gain or loss recognized on the disposal or measurement to fair value less costs to sell.
Cash flows from discontinued operations are disclosed separately in the statement of cash flows.
Example Income Statement Presentation:
Income Statement Line | Amount ($) |
Income from continuing operations | 500,000 |
Income from discontinued operations (net of tax) | 75,000 |
Net income | 575,000 |
Additional Disclosures
Required disclosures for each discontinued operation include:
Description of the discontinued operation and facts/circumstances leading to the disposal.
Pre-tax profit or loss, related income tax, and major line items of profit or loss.
Cash flows attributable to the discontinued operation.
Carrying amounts of assets and liabilities classified as held for sale.
Reclassification and Subsequent Changes
If a plan to sell is withdrawn, the asset is reclassified as held and used, and measured at the lower of:
The carrying amount before the asset was classified as held for sale, adjusted for depreciation/amortization that would have been recognized, and
Its recoverable amount at the date of the subsequent decision not to sell.
Relevant Accounting Standards
US GAAP: ASC 205-20—Presentation of Financial Statements—Discontinued Operations
IFRS: IFRS 5—Non-current Assets Held for Sale and Discontinued Operations
Both standards have converged on key definitions and presentation requirements.
Summary Table: Discontinued Operations and Held-for-Sale Assets
Aspect | Treatment |
Definition | Major line of business/geographical area disposed of |
Measurement | Lower of carrying amount and fair value less costs to sell |
Depreciation | Ceases upon held-for-sale classification |
Presentation | Separate, net of tax, below continuing operations |
Disclosure | Detailed nature, results, cash flows, assets/liabilities |
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