DISCONTINUED OPERATION

PFRS 5
Discontinued operation
A component of an entity that either has been disposed of or
is classified as held for sale and
a. Represents a separate major line of business or
geographical area of operations
b. Is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of
operations
c. Is a subsidiary acquired exclusively with a view of resale
a and b pertain to disposal group
Component of an entity
May be a subsidiary, a major line of business or
geographical segment whose operations and cash flows can
be clearly distinguished operationally and for financial
reporting purposes, from the rest of the entity
Timing of reporting
Component of an entity is classified as discontinued
operation at the date
a. When the entity has actually disposed of the operation
b. When the operation meets the criteria to be classified as
held for sale

PFRS 5 prohibits the retroactive classification as a

discontinued operation when the discontinued criteria are
met after the end of reporting period
Component classified as held for sale
if the CA will be recovered principally through a sale
transaction rather than through continuing use

must be available for immediate sale in the present

condition and the sale must be highly probable

accounted for as
“disposal group classified as held for sale”
Examples of discontinued operation
a. Selling by a diversified entity of a major division that
represents the entity’s only activities in the electronics
industry
b. Selling by a meat packing entity of controlling interest in a
furniture entity; all other operations are in the meat packing
business
c. Selling by a communications entity of all its radio stations;
remaining activities are television stations and publishing
house
d. A conglomerate is engaged in commodity business, real
estate, manufacturing and construction business; selling of
any of these businesses is a discontinued operation
NOT discontinued operation
a. Phasing out of product line within a product group
b. Shifting of production or marketing activities for a
particular line of business from one location to
another
c. Closing of a facility, factory or branch to achieve
productivity improvement or other cost saving
Income statement presentation
Disclose a single amount on the face of the income
statement comprising the total of
a. Post-tax profit or loss of the discontinued operation;
and the
b. Post-tax gain or loss recognized on the measurement
to fair value less cost to sell or on the disposal of the
assets or disposal group constituting the discontinued
operations
Disclosures about discontinued operation
a. Amount of revenue, expenses and income or loss
attributable to the discontinued operation during the
current period and the related income tax
b. Any impairment loss if FV less cost of disposal < CA
of net assets; expected gain if FV less cost of disposal
> CA of net assets is not recognized but only disclosed
c. Any gain or loss from the actual disposal of the assets
and settlement of the liabilities of a discontinued
operation is recognized on the date of sale or date of
settlement;
d. Termination cost of employees and other costs directly
incurred as a result of the discontinuance
Results of disposal group
for prior period shall be re-presented as relating to
discontinued operation in the comparative figures for the
current year’s income statement
Statement of financial position
Present separately on the face of the statement of
financial position the following information
a. Assets of the component held for sale separately
from all other assets;
b. Assets of the component held for sale are measured
at the lower of FV less cost of disposal and CA
c. Liabilities of the component separately from all other
liabilities
d. Nondepreciation-NCA of the components held for
sale shall not be depreciated
Statement of financial position
Assets of the component presented as a single amount
under current assets
Liabilities of the component presented as a single
amount under current liabilities
cannot be offset against the other

prior period presentation of assets and liabilities is not

changed
Cash flow presentation
Net cash flows attributable to the operating, investing
and financing activities of a discontinued operation
shall be separately presented in the statement of cash
flows or disclosed in the notes
Illustration
Refer to the book: Zeta Company
Abandoned discontinued operation
PFRS 5 prohibits noncurrent assets that will be abandoned
from being classified as held for sale

If the assets to be abandoned are a major line of business or

geographical area of operations, they are reported in
discontinued operations at the date on which they are
actually abandoned
SEATWORK
Harlet Company, Lann Company, Jazz Company

Ans. A
C
D
Illustration
Condensed Income Statement of Vital Corporation
2015 2014
Sales 5,000,000 4,900,000
Cost of goods sold 3,350,000 3,300,000
Gross Income 1,650,000 1,600,000
Operating Expense 675,000 650,000
Operating Income 975,000 950,000
Gain on sale of division 200,000 0
Income before tax 1,175,000 950,000
Income tax expense 411,250 332,500
Net Income 763,750 617,500
On October 10, 2015, Vital entered into an agreement to sell the
assets of one of its geographical segments. The geographical
segment comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes,
from the rest of the company.

The segment was sold on December 31, 2015 for P1,750,000. The
book value of the segment’s assets was P1,550,000. The segment’s
contribution to Vital’s operating income before tax for each year
was as follows: 2015 P113,750 loss; 2014 P81,250 income.

Based on the above data, calculate the following:

a. Income from continuing operations in 2014 & 2015
b. Income from discontinued operations in 2014 & 2015
c. Net income in 2014 & 2015
d)
Assume that by December 31, 2015, the segment had not yet been
sold but was considered held for sale. The fair value of the
segment’s assets on December 31 was P1,750,000. The post-tax
income (loss) from discontinued operations for 2015 should be
__________.

e)
Assume that by December 31, 2015, the segment had not yet been
sold but was considered held for sale. The fair value of the
segment’s assets on December 31 was P1,250,000. The post-tax
income (loss) from discontinued operations for 2015 should be
__________.