IAS 35, or International Accounting Standard 35, “Discontinuing Operations,” is an accounting standard issued by the International Accounting Standards Board (IASB) that provides guidance on the accounting treatment and disclosure requirements for discontinuing operations. Discontinuing operations are defined as components of an entity that have been disposed of or are classified as held for sale, and represent a separate major line of business or a geographical area of operations. Here are some examples of how IAS 35 may be applied in practice:
- Example 1: XYZ Inc, a manufacturing company, decides to sell one of its business segments, which produces a specific type of product that is no longer strategic to the company’s operations.
XYZ Inc identifies the business segment as a discontinuing operation as per the definition provided in IAS 35. The company classifies the assets and liabilities associated with the discontinuing operation as held for sale, and measures them at the lower of their carrying amount and fair value less costs to sell. Any impairment losses on the assets of the discontinuing operation are recognized in the income statement. XYZ Inc also presents the results of the discontinuing operation separately in the income statement, including revenues, expenses, and taxes related to the discontinuing operation. Additionally, XYZ Inc discloses the details of the discontinuing operation in the notes to its financial statements, including the reasons for the discontinuation, the financial results of the discontinuing operation, and any significant uncertainties related to the measurement or timing of the disposal.
- Example 2: ABC Corp, a real estate company, decides to dispose of a property that is no longer deemed strategic to its operations.
ABC Corp classifies the property as held for sale and recognizes it as a discontinuing operation as per IAS 35. The property is measured at the lower of its carrying amount and fair value less costs to sell. Any impairment losses on the property are recognized in the income statement. ABC Corp presents the results of the discontinuing operation separately in the income statement, and discloses the details of the discontinuing operation in the notes to its financial statements, including the reasons for the discontinuation, the financial results of the discontinuing operation, and any significant uncertainties related to the measurement or timing of the disposal.
- Example 3: DEF Ltd, a retail company, decides to close down a non-performing store location and sell its assets.
DEF Ltd classifies the store location as held for sale and recognizes it as a discontinuing operation as per IAS 35. The assets of the store location, including inventory, fixtures, and equipment, are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment losses on the assets of the discontinuing operation are recognized in the income statement. DEF Ltd presents the results of the discontinuing operation separately in the income statement and discloses the details of the discontinuing operation in the notes to its financial statements, including the reasons for the discontinuation, the financial results of the discontinuing operation, and any significant uncertainties related to the measurement or timing of the disposal.
It’s important to note that the specific application of IAS 35 may vary depending on the individual circumstances and accounting policies of each entity. Professional judgment and expertise may be required to properly apply the guidance in IAS 35 and ensure compliance with the applicable accounting standards and regulations in the accounting treatment and disclosure of discontinuing operations.