AS -24

1. AS -24 DISCONTINUING OPERATIONS Rajiv K. Doshi

2. Level I Mandatory Wef. 01.04.2004 • Listed Company • Under Listing Process • Banks & Co. Op. Banks • FI • Insurance Company • Turnover > 50 Cr. (Exclusive other income) • Borrowing & public Deposits > 10 Cr. (at any time) • Holding & Subsiding Enterprise of any above • What if subsequently ceased to be covered? – two years

3. AS-24 & I.T. • Does not directly affect. • Issue of allowing losses of discontinuing operations. • Block of Asset.

4. Discontinuing Vs Discontinued

5. Objective To establish principles for reporting information about discontinuing operation, thereby enhancing the ability of users of financial statement to make projection of enterprises cash flows, earnings generating capacity and financial position by segregating information about discontinuing operation from information about continuing operations.

6. Definition • A discontinuing operation is a component of an enterprise That the enterprise pursuant to single plan Disposing of substantial Disposing of piecemeal Terminating in its entirety e.g. by selling, e.g. selling of assets, Selling through Spin off of ownership. Settling its liability. Abandonment That represents a separate major line of business or geographical area of operation. That can be distinguished operationally and for financial reporting purpose (Segment Reporting AS 17)

7. Alternatively • Overall plan to discontinue the entire line of business or geographical area which can be distinguished operationally and for financial reporting purpose. • It can be Entirety Sale Single or or Transaction or Piecemeal Abandonment series of Transaction

8. Acid Tests • The result of operation of the segment being sold or abandoned can not be separately identified. • Gradual or evolutionary phasing out of a product line or class of services. • Discontinuing (even abruptly) several products within on going line of business. • Shifting of some production or marketing activities for a particular line of business from one location to another. • Closing a facility to achieve productivity improvement or cost savings. • Subsidiary is entirely sold but the business of subsidiary is also carried out by parent or other subsidiary. • Disposal of two or more unrelated assets that individually do not constitute a segment. • Scale down of operation. • Example: • Holding Ltd. (H) holds 60% equity in subsidiary Ltd. (S). During the year, it sold off 20% equity. As a result S ceased to be subsidiary of H.

9. Abandonment • Pursuant to over all plan • To discontinue the entire line of business or geographical area. • Which can be distinguished operationally and for financial reporting • Operation distinguishable operationally and for financial reporting • Operating assets and liabilities of the component can be directly attributed to it. • Its revenue could be directly attributed to it. • At least a majority of its operating expenses can be directly attributed to it. • Meaning of directly attributed : • Assets, liabilities, revenue and expenses are directly attributably to a component if they would be eliminated when the component is sold, abandoned etc. • Example: • Close a facility • Abandon product / product lines, • Change the size of work force

10. Going Concern Vs. Discontinuing Operation • If the enterprise discontinues a substantial part of its operations as a result of which it has no other operations to carry. It would cease to be going concern. • If the enterprise merely disposes off its other business profitably, it would continue as going concern.

11. Initial Disclosure Event • Earlier of • Binding Sales agreement for substantially all the assets attributable to discontinuing operation. • BOD has (I) Approved detailed formal plan AND (II) Made an announcement of plan.

12. MOU / Business Transfer Agreement • Whether the agreement is legally binding one or conditional on several factors • Compulsion on both the part.

13. Contests of Detailed Formal plan • Identification of the major assets to be disposed of • Expected method of disposal • Expected period for completion • Principal locations affected. • Location, Function and approximate number of employees to be compensated. • Estimated proceeds on salvage

14. Announcement of Plan • Announcement of main features to those affected such as lenders, stock exchange, creditors, trade union, etc. • In sufficiently specific manner • Example: • A pre year end decision to close a division not communicated to affected parties (Workers, Customers etc.)

15. Contents of Initial Disclosure • Description of discontinuing operation. • Business or geographical segment. • Date & nature of initial disclosure event. • Period in which discontinuance is expected to be completed. • Carrying amount of assets to be disposed of and liabilities to be settled. • Revenue & expenditure in respect of ordinary activities attribute able to the discontinuing operations during the current financial reporting period. • Amount of pre tax profit or loss from ordinary activities attributable to discontinuing operation and amount of Income Tax. • Amount of Net Cash Flow attributable to discontinuing operation. • Assets, Liabilities, Revenue, Expenses, Gain, Loss, and Cash Flow pertaining to discontinuing operation would be disposed off, settled, reduced, and eliminated when discontinuance is completed. If such items continue after completion of discontinuance, they can not be allocated to discontinuing operation. • Example: • Salary of continuing staff

16. Discontinuance After Balance Sheet Date Contingencies & Events occurring after Balance Sheet Date (AS 4)

17. Disclosures other then Initial Disclosures • Gain or loss and I.T. relating to it on disposal of asset and settlement of liability. • Net selling price or range of prices, expected timing and carrying amount of assets for which binding agreements are made. • AS 4

18. Disclosures in period subsequent to Initial Disclosure • Description of significant changes in the amount or timing of cash flow • Events causing these changes

19. Period up to which discontinuing disclosure required • Plan is substantially completed • Payment from buyers!

20. Abandonment / Withdrawal of discontinuance plan • Fact with reason there of & its effects

21. More than one Discontinuing Operation • Separate disclosure of each discontinuing operation.

22. Presentation of AS 24 Disclosure • Note to the financial statement. • Profit & loss account • Pre tax profit/loss from ordinary activity attributed to discontinuing operation • Pre tax gain/loss recognized on disposal of assets or settlement of liability attributed to discontinuing operation.

23. Extra Ordinary Item! AS 5 • Event beyond the control of management

24. Need to Restate Comparative Information of Prior Period • Segregate assets, liabilities, revenues, expenses and cash flow of continuing & discontinuing operation.

25. Interim Financial Report AS-25 • Significant activities, events, changes in the amount or timing for cash flow

26. Measurement and Recognition of Profit / Loss • To follow other Accounting Standards • AS 24 does not establish any measurement or recognition principles.

27. Thank You