NITIN GOEL

❏ CHARTERED ACCOUNTANT

❏ All India Rankholder

(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist

❏ Educator: CA Inter Accounts

& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience

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 AS-24: DISCONTINUING OPERATIONS
Objective AS 24 is applicable to all discontinuing operations.

The objective of AS 24 is to establish principles for reporting information about

discontinuing operations, thereby enhancing the ability of users of financial
statements to make projections of an enterprise's cash flows, earnings-generating
capacity, and financial position by segregating information about discontinuing
operations from information about continuing operations.

Discontinuing A discontinuing operation is a component of an enterprise: (PARA 3)

Operation a) That the enterprise, pursuant to a single plan, is:
➢ Disposing of substantially in its entirety, such as by selling the component in a
single transaction or by demerger or spin-off of
ownership of the component to the enterprise's shareholders or
➢ Disposing of piecemeal, such as by selling off the component's assets
and settling its liabilities individually or
➢ Terminating through abandonment and
b) That represents a separate major line of business or geographical area of
operations.
c) That can be distinguished operationally and for financial reporting purposes.
Activities not Examples of activities that do not necessarily satisfy criterion (a) of the definition,
necessarily but that might do so in combination with other circumstances, include:
Discontinuing ❖ Gradual or evolutionary phasing out of a product line or class of service.
Operations
❖ Discontinuing, even if relatively abruptly, several products within an ongoing line
of business.
❖ Shifting of some production or marketing activities for a particular line of
business from one location to another and
❖ Closing of a facility to achieve productivity improvements or other cost savings.
Initial Occurrence of one of the following, whichever occurs earlier:
Disclosure a) The enterprise has entered into a binding sale agreement for substantially all of
event assets attributable to the discontinuing operation or
b) The enterprise's board of directors or similar governing body has both
(i) approved a detailed, formal plan for the discontinuance and
(ii) made an announcement of the plan.
A detailed, formal plan for the discontinuance normally includes:
➢ identification of the major assets to be disposed of;
➢ the expected method of disposal;
➢ the period expected to be required for completion of the disposal;
➢ the principal locations affected;
➢ the location, function, and approximate number of employees who will be
compensated for terminating their services; and
➢ the estimated proceeds or salvage to be realised by disposal.
Presentation An enterprise should include the following information relating to a discontinuing
& Disclosure operation in its financial statements beginning with the financial statements for the
(Initial period in which the initial disclosure event occurs:
Disclosure)
❖ A description of the discontinuing operation(s)
❖ The business or geographical segment(s) in which it is reported as per AS 17
❖ The date and nature of the initial disclosure event.
❖ The date or period in which the discontinuance is expected to be completed if
known or determinable
❖ The carrying amounts, as of the balance sheet date, of the total assets to be
disposed of and the total liabilities to be settled
❖ Amounts of revenue & expenses in respect of ordinary activities attributable to
the discontinuing operation during the current financial reporting period
❖ The amount of pre-tax profit or loss from ordinary activities attributable to the
discontinuing operation during the current financial reporting period, and the
income tax expense related thereto
❖ The amounts of net cash flows attributable to the operating, investing, and
financing activities of the discontinuing operation during the current financial
reporting period
Presentation All the disclosures above should be presented in the notes to the financial
of the above statements except for amounts pertaining to pre-tax profit/loss of the
disclosures discontinuing operation and the income tax expense thereon (second last above)
which should be shown on the face of the statement of profit and loss.
 PART II – STATEMENT OF PROFIT AND LOSS
Figures as at the Figures as at the
Note
PARTICULARS end of current end of previous
No.
Reporting period reporting period
I. Revenue from operations
II. Other income
III. Total Income (I + II)
IV. Expenses:
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in inventories of finished goods, work-in-
progress and Stock-in-Trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total Expenses
V. Profit before exceptional and extraordinary
items and tax (III-IV)
VI. Exceptional items
VII. Profit before extraordinary items and tax (V - VI)
VIII. Extraordinary Items
IX. Profit before tax (VII- VIII)
X Tax expense:
(1) Current tax
(2) Deferred tax
XI. Profit (Loss) for the period from continuing
operations (VII-VIII)
XII. Profit/(loss) from discontinuing operations
XIII. Tax expense of discontinuing operations
XIV. Profit/(loss) from Discontinuing operations (after
tax) (XII-XIII)
XV Profit (Loss) for the period (XI + XIV)
XVI. Earnings per equity share:
(1) Basic
(2) Diluted
Question 1 RTP May 2017 / RTP Nov 2017 / RTP May 2018
A Washing articles producing company provide the following information:
Washing bar Washing
Powder
January, 2019 – September, 2019 per month 2,00,000 2,00,000
October, 2019 – December, 2019 per month 1,00,000 3,00,000
January, 2020- March, 2020 per month 0 4,00,000
The company has enforced a gradual change in product-line on the basis of an overall plan. The Board of
Directors of the company has passed a resolution in March, 2019 to this effect. The company follows calendar
year as its accounting year. Should this be treated as a discontinuing operation? Give reasons in support of
your answer

Solution
In response to the market forces, business enterprises often abandon products or even product lines and reduce
the size of their work-force. These actions are not in themselves discontinuing operations unless they satisfy the
definition criteria.
In the instant case the company has been gradually reducing operation in the product line of washing bars,
simultaneously increasing operation in the product line of Washing powder. The company was not disposing
of any of its components. Phasing out a product line as undertaken by the company does not meet definition
criteria in paragraph 3 of AS 24, namely, disposing of substantially in its entirety a component of the
enterprise. Therefore, this change over is not a discontinuing operation.
Question 2 RTP May 2021 (Similar)
Qu Ltd. is in the business of manufacture of Passenger cars and commercial vehicles. The company is working
on a strategic plan to shift from the Passenger car segment over the coming 5 years However no specific plans
have been drawn up for sale of neither the division nor its assets. As part of its plan it will reduce production of
passenger cars by 20% annually. It also plans to commence another new factory for the manufacture of
commercial vehicles and transfer plus employees in a phased manner.
a) You are required to comment if mere gradual phasing out in itself can be considered as a ‘Discontinuing
Operation' within the meaning of AS 24.
b)lf the company passes a resolution to sell some of the assets in the passenger car division and also to transfer
few other assets of the passenger car division to the new factory, does this trigger the application of AS 24 ?
c) Would your answer to the above be different if the company resolves to sell the assets of the Passenger Car
Division in a phased but time bound manner?

Solution
Mere gradual phasing is not considered as discontinuing operation as defined under para 3 of AS 24,
‘Discontinuing Operation’.
In view of the above the answers are:
a) No. The companys’ strategic plan has no final approval from the board through a resolution and no specific
time bound activities like shifting of Assets and employees and above all the new segment commercial
vehicle production line and factory has started.
b)No. The resolution is salient about stoppage of the Car segment in definite time period. Though, some assets
sales and transfer proposal was passed through a resolution to the new factory, closure road map and new
segment starting road map is missing. Hence, AS-24 will not be applicable.
c) Yes. Phased and time bound programme resolved in the board clearly indicates the closure of the passenger
car segment in a definite time frame and clear road map.
Hence, this action will attract AS-24 compliance.
Question 3 RTP Nov 2018 / RTP May 2020
Give four examples of activities that do not necessarily satisfy criterion (a) of paragraph 3 of AS 24, but that
might do so in combination with other circumstances.

Solution
Para 3 of AS 24 “Discontinuing Operations” explains the criteria for determination of discontinuing
operations. According to Paragraph 9 of AS 24, examples of activities that do not necessarily satisfy criterion
(a) of paragraph 3, but that might do so in combination with other circumstances, include:

a) Gradual or evolutionary phasing out of a product line or class of service;

b) Discontinuing, even if relatively abruptly, several products within an ongoing line of business;
c) Shifting of some production or marketing activities for a particular line of business from one location to
another; and
d) Closing of a facility to achieve productivity improvements or other cost savings.
 AS 24 Ch 10J - 1
Question 4 Inter Nov 2018 (5 Marks) / RTP May 2020 / RTP Nov 2020
What are the disclosure and presentation requirements of AS 24 for discontinuing operations?

Solution
An enterprise should include the following information relating to a discontinuing operation in its financial
statements beginning with the financial statements for the period in which the initial disclosure event (as
defined in paragraph 15) occurs:
a) a description of the discontinuing operation(s);
b) the business or geographical segment(s) in which it is reported as per AS 17, Segment Reporting;
c) the date and nature of the initial disclosure event;
d) the date or period in which the discontinuance is expected to be completed if known or determinable;
e) the carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total
liabilities to be settled;
f) the amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing
operation during the current financial reporting period;
g) the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation
during the current financial reporting period, and the income tax expense related thereto; and
h) the amounts of net cash flows attributable to the operating, investing, and financing activities of the
discontinuing operation during the current financial reporting period.