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Hi Mike,
Is the classification of a discontinued operation applied retrospectively- must the comparative results for the previous year ended be restated?
To be classified as a discontinued operation the operation must fulfill these 4 requirements:
1. A component of entity that has been disposed of or classified as held for sale
2. A separate major line of business
3. Contributes a significant amount of revenue to the company
4. Produces a different item or service from other operations in the companyIs ‘requirement 1″ the most important requirement to decide whether an operation qualifies for the classification of discontinued operations? For example, if a company merely announces and communicates to the staff about the closure, and no information has been given on whether the assets are up for sale or not, the operation should still be accounted for as a continuing operation, is that correct?
Hoping to hear from you, thank you.
You have said yourself …
“To be classified as a discontinued operation the operation must fulfill these 4 requirements:”
Now, ask yourself this …
“If it doesn’t satisfy requirement 3, can it be classed as a discontinued operation?” and you have correctly pointed out that it must satisfy all four
So does my example of non-satisfaction of requirement 3 make it more important than requirement 1 (or 2, or 4, or 1 with 4 or …)
Within your post there is this question …
…”Is ‘requirement 1? the most important requirement to decide whether an operation qualifies for the classification of discontinued operations?”
Can you accept that, in my book, requirement 3 is more important (or requirement 2 … or requirement 4 … or … or … or …)?
No, I cannot accept that. I should have known better!
Is the classification of a discontinued operation applied retrospectively- must the comparative results for the previous year ended be restated?
Yes, in the light of current knowledge about the area of operations that is now discontinued, for a meaningful comparison of year-on-year figures, the comparatives will need to be restated
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