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Scenario: Board has made a decision to discontinue an operating segment in Feb. It has told the staff in March. The year end is in Sept. The company has currently classified the disposal as a discontinued operations.
Additional info given: The building will be demolished and staff will be paid in Dec. The Company will commence looking for an active buyer in Nov.
Qn: Can this still be considered as a discontinued operation?
Thank you
Definition of discontinued operation:
“A component of an entity that either has been disposed of [past tense] or is classified as held for sale [present tense]…”
Since it hasn’t de facto been disposed of at the reporting date, it can only be discontinued if the component is classified as held for sale.
It doesn’t sound like held for sale because if the building will be demolished it is being abandoned – and at the reporting date there is no active programme to locate a buyer (of what? what else is there apart from the building?)
If sounds to me more like there should be provisions for redundancies and write-down for building impairment, but there won’t be discontinuing operation unless there is a disposal in the next reporting period.
Thank you for the reply.
Qn: What does it mean by “there won’t be discontinued operations unless there is a disposal in the next reporting period”?
Does this mean that if by the next reporting period, it is being disposed off, it can be considered as a discontinued operation in the current period?
Say the y/e is 30 September 20X1 – as I’ve explained, it doesn’t appear that the definition of discontinued operation has been met.
But if there is a disposal of a component in y/e 30 September 20X2, a discontinued operation will be reported in that year and the disclosures for the prior periods presented (i.e. 20X1) will be re-presented.
I am suggesting, however, that there will be no discontinued operation because it doesn’t appear to meets the definition. There doesn’t seem to be a “single co-ordinated plan to dispose of ….” – staff are being made redundant, a building is to be demolished – I have no idea what they might be looking for a buyer for – but clearly this is not the disposal of some group of assets/operational undertaking. Just because a company winds down areas of operations doesn’t mean there is a discontinued operation. That’s why IFRS 5 is needed – so companies don’t just randomly separate out the “bad news” as discontinued.
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