Discontinuing Operations
AS – 24
Contents
Ø Applicability & Nature
Ø Meaning of Discontinuing Operations
Ø Explanation of Meaning
Ø Initial Disclosure Events
Ø Disclosure
Applicability & Nature
Applicable : Level I 01-04-2004
Level II, III 01-04-2005
Nature : Mandatory
Meaning of Discontinuing Operations
As per AS – 24, Discontinuing Operation is the operation which is expected to be discontinued in future period, but at present such operation is not a discontinued operation. The following conditions should be satisfied to classify an operation as discontinuing operation.
Segment: If any operation is to be classified under the heading of discontinuing operation then such operation should be a business segment or geographical segment. On the basis of such explanation, it can be said that discontinuing operation can be a product of any business area.
Operational & Functional information: Discontinuing operation should be classified separately from the point of view of operation as well as financial performance. It can be said that the following amounts should be available in relation to discontinuing operation.
- Assets of Discontinuing Operation
- Liabilities of Discontinuing Operation
- Income of Discontinuing Operation
- Expenses of Discontinuing Operation
Note: If any amount out of specified amounts is not available then application of AS – 24 should not be made.
Sale & Abandonment
1. Single Transaction: If all the items of discontinuing operation are sold to a single buyer and procedure for single transaction has been started then it will be assumed that conditions of AS – 24 have been satisfied.
2. Multiple Transactions: If items of Discontinuing operation are not transferred to a single buyer but these items are to be sold to multiple buyers and procedure for these transaction has been started then such operation can be classified as discontinuing operation.
3. Abandonment: In the case of Abandonment, items of discontinuing operation have not sold to outsiders but usages of these items are stopped by locking the factory. The main condition of the abandonment that unused item can not be used for any income by way of rental or any production plant.
Following items should be excluded out of Discontinuing Operation.
(i) Change in location of Production
(ii) Change in production plant
(iii) Sale
(iv) The Abandon factory used for rental purpose or production of any other product.
Initial Disclosure Events |
Formal plan is or Single Transaction agreement
announced by BOD has taken place Which ever is earlier
Important Points in Formal Plan
(a) Contents of Formal Plan
· Name of Discontinuing operation
· Name of related assets or liabilities
· Expected date of the completion of procedure
· Expected realizable value from the transaction
· Amount of compensation which is expected to be paid of the effected employees
(b) Announcement: Information of formal plan should be given to the related parties & loan providers as well as Trade Creditors.
Disclosure (Notes to Accounts)
1. Nature of Initial Disclosure Events
2. Date of Initial Disclosure Events
3. Carrying amount of Assets & Liabilities of discontinuing operation should also be disclosed.
4. Expected Realizable value of Assets & expected payment of Liabilities should be disclosed.
5. If any profit has been generated by the discontinuing operation during the period then such profit should also be disclosed.
6. Cash Flow statement of discontinuing operation should be prepared additionally to normal cash flow statement of the remaining business.
Ÿ��� ��� XxxxPurchase by Shares
Cost of Intangible Assets Fair value or Fair Value of
I.A. taken share issued Whichever is clearly evident
Notes:
(1) If shares of the company are listed on stock exchange then market price can be used directly for the shares issued.
(2) If shares of the company are not listed then fair value of intangible asset acquired can be used.
(3) If fair value of intangible taken & share issued both are available then fair value of taken assets should be preferred.
Exchange by Assets
If any intangible asset is exchanged by asset then fair value of given asset should be recognized as cost of intangible. In the absence of such fair value, book value should be recorded of given asset.
Note: Provisions of AS – 26 are not similar under specified heading as in AS – 13 & AS – 10. As per AS – 26, fair value of given asset or book value of given asset can be used for recognition and no settlement in cash will be considered.
As per AS – 10 & 13, settlement in cash can take place at the time of exchange of asset because fair value of asset taken as well as fair value of asset given are considerable.
Taken in Amalgamation
If any intangible is taken over under the scheme of amalgamation then the following points may be applied.
(i) First Recognition
 |
Fair Value available Fair value not availableShould be recognized separately Should not be recognized separately
By fair value (subject to conditions and should be included in Goodwill
specified below)
(ii) Fair value of intangible asset can be recognized by active market or latest transaction price.
(iii) If active market is available then full amount of intangible asset should be recognized.
(iv) If latest transaction price is used for recognition then cost can be recognized to the extent by which capital reserve is not created. (The above provision can be applicable only for amalgamation in the nature of purchase)
Purchased by Govt Grant
If any intangible asset is purchased by Govt grant then cost of intangible asset can be recorded by net approach or gross approach specified in AS – 12.
Balance Sheet (Disclosure) [Net Approach]
Intangible Asset xxxx
Less: Grant xxxx xxxx
Balance Sheet (Disclosure) [Gross Approach]
Deferred Grant xxxx Intangible Asset xxxx
(Full amount)
Internally Generated Intangible Asset
If any intangible asset is generated internally by the enterprise, then it is generated under two different phases.
1) Research Phase: Research phase is the planed investigation carried by enterprise to create new application of business activities. Research activities may include invention of new products, production techniques, technical system or any other finding for cost saving or future benefits to enterprise. (All the expenses during research phase should be written off in P&L a/c immediately because it is not certain during research phase that any result will be obtained or not from research.)
2) Development Phase: Development phase is the verified application of research activities and all the expenses during the development phase should be capitalized in the cost of intangible asset. Before capitalizing the expenditure during development phase the following conditions should be satisfied.
- Technical should be available with the enterprise.
- The
- After completion of intangible the enterprise should be able to use or sell intangible.
- Future economic benefit should be measured by suitable assumption.
- Financial Resources should be proper to complete the asset.
- There will be proper system to record the cost during development phase.
(i) Cash/Bank/Grant Receivable Dr
To Govt Grant
(ii) Grant A/c Dr
To Deferred Grant A/c (It is transferred to reserve &surplus)
(iii) Deferred Grant A/c Dr
To P&L A/c
Refund of Grant:
Deferred Grant A/c (O/s Bal) Dr
P&L A/c (which is already used) Dr
To Cash/Bank/Grant Receivable
Note: At the time of refund of grant total benefit should be reversed in the current period in total irrespective the effect of these transaction on current year profits.
Disclosure:
(i) Accounting policy should be disclosed separately in relation to classification of nature of grant.
(ii) If any refund has been made during the period then amount of refund should be also disclosed.
Difference between AS/IAS/US GAAP:
If any grant is related to promoter’s contributions then accounting of such grant should be made as capital profits as per as-12. The same grant should be recognized as revenue profits as per other statements. Revenue profits should be recognized on deferred basis as per management intention.
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