Introduction
IAS 35, also known as International Accounting Standard 35, provides guidance on accounting for discontinuing operations in the financial statements of an entity. The standard applies to all types of entities that prepare financial statements in accordance with International Financial Reporting Standards (IFRS).
What is a Discontinuing Operation?
A discontinuing operation is a part of an entity's business that management has decided to dispose of or has already disposed of. It can be a single component of an entity, a group of components or a business segment. A discontinuing operation can be classified as held for sale or already disposed of.
Held for Sale
An operation is classified as held for sale when all the following criteria are met:
- Management has committed to a plan to sell the operation
- The operation is available for immediate sale in its present condition
- The sale is highly probable, and the entity is actively seeking a buyer
- The sale is expected to be completed within one year from the date of classification
Already Disposed of
An operation is classified as already disposed of when it has been sold or transferred to another party and meets the following criteria:
- The entity will not have any significant continuing involvement in the operation after the sale
- The entity has received or will receive consideration for the disposal, and the consideration can be measured reliably
Accounting Treatment for Discontinuing Operations
When an operation is classified as held for sale, it must be measured at the lower of its carrying amount or fair value less costs to sell. The carrying amount includes any goodwill or other intangible assets related to the operation.
If the fair value less costs to sell is less than the carrying amount, an impairment loss must be recognized in the income statement. Any subsequent increases in the fair value less costs to sell of the operation, up to the carrying amount, must be recognized in the income statement.
When an operation is classified as already disposed of, any gain or loss on disposal must be recognized in the income statement. The gain or loss is calculated as the difference between the consideration received and the carrying amount of the operation.
Disclosure Requirements
IAS 35 requires entities to disclose the following information for each class of discontinuing operation:
- A description of the discontinuing operation
- The business or geographical segment to which the operation belongs
- The amount of pre-tax profit or loss from the operation
- The gain or loss recognized on the disposal of the operation
- The carrying amount of assets and liabilities related to the operation at the date of classification as held for sale or disposal
- The amount of any impairment loss recognized on the operation
- The cash flows attributable to the operation for the current period and cumulatively for the period from the date of classification as held for sale or disposal
Conclusion
IAS 35 provides guidance on the accounting treatment and disclosure requirements for discontinuing operations. The standard ensures that entities provide relevant and reliable information in their financial statements to enable users to make informed decisions about the entity's financial position and performance.
FAQs
Frequently Asked Questions about IAS 35
IAS 35 is an International Accounting Standard that provides guidance on accounting for discontinuing operations in the financial statements of an entity.
A discontinuing operation is a part of an entity's business that management has decided to dispose of or has already disposed of.
An operation is classified as held for sale when all of the following criteria are met:
- Management has committed to a plan to sell the operation
- The operation is available for immediate sale in its present condition
- The sale is highly probable, and the entity is actively seeking a buyer
- The sale is expected to be completed within one year from the date of classification.
When an operation is classified as held for sale, it must be measured at the lower of its carrying amount or fair value less costs to sell. If the fair value less costs to sell is less than the carrying amount, an impairment loss must be recognized in the income statement. When an operation is classified as already disposed of, any gain or loss on disposal must be recognized in the income statement.
IAS 35 requires entities to disclose the description of the discontinuing operation, the business or geographical segment to which the operation belongs, the amount of pre-tax profit or loss from the operation, the gain or loss recognized on the disposal of the operation, the carrying amount of assets and liabilities related to the operation at the date of classification as held for sale or disposal, the amount of any impairment loss recognized on the operation, and the cash flows attributable to the operation for the current period and cumulatively for the period from the date of classification as held for sale or disposal.
IAS 35 applies to all types of entities that prepare financial statements in accordance with International Financial Reporting Standards (IFRS).
How Future Connect Training's Management Accounts Training can help in understaing IAS 35?
- Future Connect Training's Management Accounts training can provide a solid foundation in understanding IAS 35 and its application in accounting for discontinuing operations.
- The Management Accounts training covers the basics of financial accounting, management accounting, and financial reporting, which are all necessary skills for understanding IAS 35. The training can help participants understand the requirements of IAS 35, such as the criteria for an operation to be classified as held for sale or already disposed of, and the accounting treatments and disclosure requirements for discontinuing operations.
- Furthermore, the Management Accounts training can equip participants with the knowledge and skills needed to prepare and analyze financial statements, including the income statement and balance sheet, which are essential components in understanding the financial impact of discontinuing operations.
- In summary, Future Connect Training's Management Accounts training can provide participants with a comprehensive understanding of financial reporting and analysis, which can aid in comprehending IAS 35 and its application in accounting for discontinuing operations.
