ASC

ASC 205-20

Discontinued Operations

205 Presentation of Financial Statements

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In brief

IntermediatePresentationDisclosureFinancial statement presentationDerecognition

ASC 205-20 governs when a disposal must be reported as a discontinued operation and how it is presented and disclosed. A disposal of a component (or group of components) qualifies only if it represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results, triggered when the component is classified as held for sale, disposed of by sale, or disposed of other than by sale (e.g., abandonment or spinoff) (205-20-45-1B). Results of discontinued operations, net of tax, are presented as a separate component of income for current and prior periods, held-for-sale assets and liabilities are presented separately (not offset) on the balance sheet, and extensive note disclosures are required.

Key points (7)
  • Scope covers a component or group of components disposed of or classified as held for sale, and a business or nonprofit activity classified as held for sale on acquisition or upon formation of a joint venture; full-cost-method oil and gas properties are excluded (205-20-15-2 through 15-3).
  • Discontinued operations reporting requires a strategic shift with a major effect — e.g., disposal of a major geographical area, major line of business, or major equity method investment — upon held-for-sale classification, sale, or disposal other than by sale (205-20-45-1B through 45-1C).
  • Held-for-sale classification requires all six criteria in 205-20-45-1E (management commitment, available for immediate sale, active program to locate a buyer, sale probable within one year, active marketing at a price reasonable to fair value, and unlikely significant plan changes), with limited one-year exceptions in 205-20-45-1G; if criteria cease to be met, the asset is reclassified as held and used under 360-10-35-44 (205-20-45-1F).
  • Results of all discontinued operations, less applicable income taxes, are reported as a separate component of income for current and prior periods, and any gain or loss on disposal (or loss on held-for-sale classification), computed under other Subtopics such as Topic 360, is presented on the face or disclosed in the notes (205-20-45-3 through 45-3C).
  • Interest on debt assumed by the buyer or required to be repaid must be allocated to discontinued operations; allocation of other consolidated interest is permitted but not required and must be applied consistently, while general corporate overhead shall never be allocated (205-20-45-6 through 45-9).
  • Assets and liabilities of a discontinued operation classified as held for sale are presented separately in the asset and liability sections of the balance sheet for all periods presented and shall not be offset as a single amount; major classes must be presented on the face or disclosed (205-20-45-10 through 45-11).
  • Required disclosures include facts and circumstances of the disposal, segment(s) involved, pretax profit or loss and its major line items, cash flow data, major classes of held-for-sale assets and liabilities with reconciliations, and significant continuing involvement after disposal; an equity method investment disposal gets only the limited disclosure in 205-20-50-7 (205-20-50-1, 50-4A through 50-5D).

For students. Post-ASU 2014-08 the bar is high: not every disposal of a component is a discontinued operation \u2014 it must be a strategic shift with a major effect (major line of business, geography, or equity method investment). A common exam trap is assuming continuing involvement or retained interest disqualifies discontinued operations treatment; it does not, it just triggers the extra disclosures in 205-20-50-4A through 50-4B.

discontinued operationsstrategic shift with major effectcomponent of an entityheld for sale criteriadisposal groupcontinuing involvementinterest allocationequity method investment disposal

Machine-generated study aid for ASC 205-20. Check the source paragraphs below.

205-20-00Status

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205-20-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
BusinessAmendedAccounting Standards Update No. 2017-0101/05/2017
BusinessAddedAccounting Standards Update No. 2014-0804/10/2014
CommoditySupersededAccounting Standards Update No. 2014-0804/10/2014
Continuation of ActivitiesSupersededAccounting Standards Update No. 2014-0804/10/2014
Continuing Cash FlowsSupersededAccounting Standards Update No. 2014-0804/10/2014
Corporate Joint VentureAddedAccounting Standards Update No. 2023-0508/23/2023
Disposal GroupAmendedAccounting Standards Update No. 2014-0804/10/2014
Firm Purchase CommitmentAddedAccounting Standards Update No. 2014-0804/10/2014
Joint VentureAddedAccounting Standards Update No. 2023-0508/23/2023
MigrationSupersededAccounting Standards Update No. 2014-0804/10/2014
Nonprofit ActivityAddedAccounting Standards Update No. 2014-0804/10/2014
Not-for-Profit EntityAddedAccounting Standards Update No. 2014-0804/10/2014
Probable (2nd def.)AddedAccounting Standards Update No. 2014-0804/10/2014
Public Business EntityAmendedMaintenance Update 2017-06 (PDF)04/07/2017
Public Business EntityAmendedMaintenance Update 2016-11 (PDF)06/27/2016
Public Business EntityAddedAccounting Standards Update No. 2014-0804/10/2014
205-20-05-1AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-05-2AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-15-1AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-15-2AmendedAccounting Standards Update No. 2023-0508/23/2023
205-20-15-2AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-15-3AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-1SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-45-1A through 45-1G
AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-1DAmendedAccounting Standards Update No. 2023-0508/23/2023
205-20-45-1DAmendedAccounting Standards Update No. 2015-1006/12/2015
205-20-45-2SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-45-3AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-3AAmendedAccounting Standards Update No. 2015-0101/09/2015
205-20-45-3A through 45-3C
AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-4AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-5AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-10AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-45-11AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-1AmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-1AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-2SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-50-3AmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-3AmendedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-3AAmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-3AAddedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-4SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-50-4AAmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-4AAddedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-4BAmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-4BAddedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-5SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-50-5A through 50-5D
AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-50-5B through 50-5D
AmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-6SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-50-7AmendedAccounting Standards Update No. 2025-1112/08/2025
205-20-50-7AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-55-1 through 55-81
SupersededAccounting Standards Update No. 2014-0804/10/2014
205-20-55-27AmendedMaintenance Update 2016-11 (PDF)06/27/2016
205-20-55-80AmendedMaintenance Update 2016-11 (PDF)06/27/2016
205-20-55-82AmendedAccounting Standards Update No. 2023-0508/23/2023
205-20-55-82 through 55-103
AddedAccounting Standards Update No. 2014-0804/10/2014
205-20-65-1AddedAccounting Standards Update No. 2014-0804/10/2014

205-20-05Overview and Background

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205-20-05-1
This Subtopic provides guidance on the presentation and disclosure requirements for discontinued operations. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity.
205-20-05-2
The required disclosures about discontinued operations vary depending on the nature of the discontinued operation. For example, if a discontinued operation includes a component or group of components of an entity that is not an equity method investment, a more comprehensive set of disclosures about the discontinued operation is required. If the discontinued operation includes an equity method investment, or a business or nonprofit activity that is classified as held for sale on acquisition, a more limited set of disclosures is required (see the flowchart in paragraph 205-20-55-82 for an illustration).

205-20-15Scope and Scope Exceptions

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Overall Guidance

205-20-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic; see Section 205-10-15, with specific transaction qualifications noted below.

Transactions

205-20-15-2
The guidance in this Subtopic applies to either of the following:
  1. a
    A component of an entity or a group of components of an entity that is disposed of or is classified as held for sale
  2. b
    A business or nonprofit activity that, on acquisition or upon formation of a joint venture, is classified as held for sale.

Entities

205-20-15-3
The guidance in this Subtopic does not apply to oil and gas properties that are accounted for using the full-cost method of accounting as prescribed by the U.S. Securities and Exchange Commission (SEC) (see Regulation S-X, Rule 4-10, Financial Accounting and Reporting for Oil and Gas Producing Activities Pursuant to the Federal Securities Laws and the Energy Policy and Conservation Act of 1975).

205-20-45Other Presentation Matters

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What Is a Discontinued Operation?

205-20-45-1A
A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity.
205-20-45-1B
A disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when any of the following occurs:
  1. a
    The component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale.
  2. b
    The component of an entity or group of components of an entity is disposed of by sale.
  3. c
    The component of an entity or group of components of an entity is disposed of other than by sale in accordance with paragraph 360-10-45-15 (for example, by abandonment or in a distribution to owners in a spinoff).
205-20-45-1C
Examples of a strategic shift that has (or will have) a major effect on an entity's operations and financial results could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity (see paragraphs
205-20-55-83 through 55-101
for Examples).
205-20-45-1D
A business or nonprofit activity that, on acquisition or upon formation of a joint venture, meets the criteria in paragraph 205-20-45-1E to be classified as held for sale is a discontinued operation. If the one-year requirement in paragraph 205-20-45-1E(d) is met (except as permitted by paragraph 205-20-45-1G), a business or nonprofit activity shall be classified as held for sale as a discontinued operation at the acquisition date or the formation date if the other criteria in paragraph 205-20-45-1E are probable of being met within a short period following the acquisition date or the formation date (usually within three months).
205-20-45-1E
A component of an entity or a group of components of an entity, or a business or nonprofit activity (the entity to be sold), shall be classified as held for sale in the period in which all of the following criteria are met:
  1. a
    Management, having the authority to approve the action, commits to a plan to sell the entity to be sold.
  2. b
    The entity to be sold is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such entities to be sold. (See Examples 5 through 7 [paragraphs
    360-10-55-37 through 55-42
    ], which illustrate when that criterion would be met.)
  3. c
    An active program to locate a buyer or buyers and other actions required to complete the plan to sell the entity to be sold have been initiated.
  4. d
    The sale of the entity to be sold is probable, and transfer of the entity to be sold is expected to qualify for recognition as a completed sale, within one year, except as permitted by paragraph 205-20-45-1G. (See Example 8 [paragraph 360-10-55-43], which illustrates when that criterion would be met.)
  5. e
    The entity to be sold is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which an entity to be sold is being marketed is indicative of whether the entity currently has the intent and ability to sell the entity to be sold. A market price that is reasonable in relation to fair value indicates that the entity to be sold is available for immediate sale, whereas a market price in excess of fair value indicates that the entity to be sold is not available for immediate sale.
  6. f
    Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
205-20-45-1F
If at any time the criteria in paragraph 205-20-45-1E are no longer met (except as permitted by paragraph 205-20-45-1G), an entity to be sold that is classified as held for sale shall be reclassified as held and used and measured in accordance with paragraph 360-10-35-44.
205-20-45-1G
Events or circumstances beyond an entity's control may extend the period required to complete the sale of an entity to be sold beyond one year. An exception to the one-year requirement in paragraph 205-20-45-1E(d) shall apply in the following situations in which those events or circumstances arise:
  1. a
    If at the date that an entity commits to a plan to sell an entity to be sold, the entity reasonably expects that others (not a buyer) will impose conditions on the transfer of the entity to be sold that will extend the period required to complete the sale and both of the following conditions are met:
    1. 1
      Actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment is obtained.
    2. 2
      A firm purchase commitment is probable within one year. (See Example 9 [paragraph 360-10-55-44], which illustrates that situation.)
  2. b
    If an entity obtains a firm purchase commitment and, as a result, a buyer or others unexpectedly impose conditions on the transfer of an entity to be sold previously classified as held for sale that will extend the period required to complete the sale and both of the following conditions are met:
    1. 1
      Actions necessary to respond to the conditions have been or will be timely initiated.
    2. 2
      A favorable resolution of the delaying factors is expected. (See Example 10 [paragraph 360-10-55-46], which illustrates that situation.)
  3. c
    If during the initial one-year period, circumstances arise that previously were considered unlikely and, as a result, an entity to be sold previously classified as held for sale is not sold by the end of that period and all of the following conditions are met:
    1. 1
      During the initial one-year period, the entity initiated actions necessary to respond to the change in circumstances.
    2. 2
      The entity to be sold is being actively marketed at a price that is reasonable given the change in circumstances.
    3. 3
      The criteria in paragraph 205-20-45-1E are met. (See Example 11 [paragraph 360-10-55-48], which illustrates that situation.)

Statement in Which Net Income Is Reported

205-20-45-3
The statement in which net income of a business entity is reported or the statement of activities of a not-for-profit entity (NFP) for current and prior periods shall report the results of operations of the discontinued operation, including any gain or loss recognized in accordance with paragraph 205-20-45-3C, in the period in which a discontinued operation either has been disposed of or is classified as held for sale.
205-20-45-3A
The results of all discontinued operations, less applicable income taxes (benefit), shall be reported as a separate component of income. For example, the results of all discontinued operations may be reported in the statement where net income of a business entity is reported as follows.
  • Income from continuing operations before income taxes $XXXX Income taxes XXX Income from continuing operations $XXXX Discontinued operations (Note X) Loss from operations of discontinued Component X (including loss on disposal of $XXX) XXXX Income tax benefit XXXX Loss on discontinued operations XXXX Net income $XXXX
205-20-45-3B
A gain or loss recognized on the disposal (or loss recognized on classification as held for sale) shall be presented separately on the face of the statement where net income is reported or disclosed in the notes to financial statements (see paragraph 205-20-50-1(b)).
205-20-45-3C
A gain or loss recognized on the disposal (or loss recognized on classification as held for sale) of a discontinued operation shall be calculated in accordance with the guidance in other Subtopics. For example, if a discontinued operation is within the scope of Topic 360 on property, plant, and equipment, an entity shall follow the guidance in paragraphs
360-10-35-37 through 35-45
and 360-10-40-5 for calculating the gain or loss recognized on the disposal (or loss on classification as held for sale) of the discontinued operation.
205-20-45-4
Adjustments to amounts previously reported in discontinued operations in a prior period shall be presented separately in the current period in the discontinued operations section of the statement where net income is reported.
205-20-45-5
Examples of circumstances in which those types of adjustments may arise include the following:
  1. a
    The resolution of contingencies that arise pursuant to the terms of the disposal transaction, such as the resolution of purchase price adjustments and indemnification issues with the purchaser
  2. b
    The resolution of contingencies that arise from and that are directly related to the operations of the discontinued operation before its disposal, such as environmental and product warranty obligations retained by the seller
  3. c
    The settlement of employee benefit plan obligations (pension, postemployment benefits other than pensions, and other postemployment benefits), provided that the settlement is directly related to the disposal transaction. A settlement is directly related to the disposal transaction if there is a demonstrated direct cause-and-effect relationship and the settlement occurs no later than one year following the disposal transaction, unless it is delayed by events or circumstances beyond an entity's control (see paragraph 205-20-45-1G).
205-20-45-6
Interest on debt that is to be assumed by the buyer and interest on debt that is required to be repaid as a result of a disposal transaction shall be allocated to discontinued operations.
205-20-45-7
The allocation to discontinued operations of other consolidated interest that is not directly attributable to or related to other operations of the entity is permitted but not required. Other consolidated interest that cannot be attributed to other operations of the entity is allocated based on the ratio of net assets to be sold or discontinued less debt that is required to be paid as a result of the disposal transaction to the sum of total net assets of the consolidated entity plus consolidated debt other than the following:
  1. a
    Debt of the discontinued operation that will be assumed by the buyer
  2. b
    Debt that is required to be paid as a result of the disposal transaction
  3. c
    Debt that can be directly attributed to other operations of the entity.
205-20-45-8
This allocation assumes a uniform ratio of consolidated debt to equity for all operations (unless the assets to be sold are atypical—for example, a finance company—in which case a normal debt-equity ratio for that type of business may be used). If allocation based on net assets would not provide meaningful results, then the entity shall allocate interest to the discontinued operations based on debt that can be identified as specifically attributed to those operations. This guidance applies to income statement presentation of both continuing and discontinued operations (including the presentation of the gain or loss on disposal of a component of an entity). A decision as to interest allocation shall be applied consistently to all discontinued operations.
205-20-45-9
General corporate overhead shall not be allocated to discontinued operations.

Statement of Financial Position

205-20-45-10
In the period(s) that a discontinued operation is classified as held for sale and for all prior periods presented, the assets and liabilities of the discontinued operation shall be presented separately in the asset and liability sections, respectively, of the statement of financial position. Those assets and liabilities shall not be offset and presented as a single amount. If a discontinued operation is part of a disposal group that includes other assets and liabilities that are not part of the discontinued operation, an entity may present the assets and liabilities of the disposal group separately in the asset and liability sections, respectively, of the statement of financial position. If a discontinued operation is disposed of before meeting the criteria in paragraph 205-20-45-1E to be classified as held for sale, an entity shall present the assets and liabilities of the discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position for the periods presented in the statement of financial position before the period that includes the disposal. When an entity separately presents in prior periods the assets and liabilities of a discontinued operation, the entity shall not apply the guidance in paragraph 360-10-35-43 as if those assets and liabilities were held for sale in those prior periods.
205-20-45-11
For any discontinued operation initially classified as held for sale in the current period, an entity shall either present on the face of the statement of financial position or disclose in the notes to financial statements (see paragraph 205-20-50-5B(e)) the major classes of assets and liabilities of the discontinued operation classified as held for sale for all periods presented in the statement of financial position. Any loss recognized on a discontinued operation classified as held for sale in accordance with paragraphs
205-20-45-3B through 45-3C
shall not be allocated to the major classes of assets and liabilities of the discontinued operation.

205-20-50Disclosure

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Disclosures Required for All Types of Discontinued Operations

205-20-50-1
The following shall be disclosed in the notes to financial statements that cover the period in which a discontinued operation either has been disposed of or is classified as held for sale under the requirements of paragraph 205-20-45-1E:
  1. a
    A description of both of the following:
    1. 1
      The facts and circumstances leading to the disposal or expected disposal
    2. 2
      The expected manner and timing of that disposal.
  2. b
    If not separately presented on the face of the statement where net income is reported (or statement of activities for a not-for-profit entity) as part of discontinued operations (see paragraph 205-20-45-3B), the gain or loss recognized in accordance with paragraph 205-20-45-3C.
  3. c
    Subparagraph superseded by Accounting Standards Update No. 2014-08.
  4. d
    If applicable, the segment(s) in which the discontinued operation is reported under Topic 280 on segment reporting.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For interim and annual reporting periods, the following shall be disclosed in the notes to financial statements that cover the period in which a discontinued operation either has been disposed of or is classified as held for sale under the requirements of paragraph 205-20-45-1E:
  1. a
    A description of both of the following:
    1. 1
      The facts and circumstances leading to the disposal or expected disposal
    2. 2
      The expected manner and timing of that disposal.
  2. b
    If not separately presented on the face of the statement where net income is reported (or statement of activities for a not-for-profit entity) as part of discontinued operations (see paragraph 205-20-45-3B), the gain or loss recognized in accordance with paragraph 205-20-45-3C.
  3. c
  4. d
    If applicable, the segment(s) in which the discontinued operation is reported under Topic 280 on segment reporting.

Change to a Plan of Sale

205-20-50-3
An entity may change its plan of sale as addressed in paragraph 360-10-35-44 or paragraph 360-10-35-45. In the period in which the decision is made to change the plan for selling the discontinued operation, an entity shall disclose in the notes to financial statements a description of the facts and circumstances leading to the decision to change that plan and the change's effect on the results of operations for the period and any prior periods presented.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1An entity may change its plan of sale as addressed in paragraph 360-10-35-44 or paragraph 360-10-35-45. In the period in which the decision is made to change the plan for selling the discontinued operation, an entity shall disclose in the notes to interim and annual financial statements a description of the facts and circumstances leading to the decision to change that plan and the change's effect on the results of operations for the period and any prior periods presented.
205-20-50-3A
The nature and amount of adjustments to amounts previously reported in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be disclosed (see paragraph 205-20-45-5 for examples of circumstances in which those types of adjustments may arise).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1The nature and amount of adjustments to amounts previously reported in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be disclosed in interim and annual reporting periods (see paragraph 205-20-45-5 for examples of circumstances in which those types of adjustments may arise).

Continuing Involvement

205-20-50-4A
An entity shall disclose information about its significant continuing involvement with a discontinued operation after the disposal date. Examples of continuing involvement with a discontinued operation after the disposal date include a supply and distribution agreement, a financial guarantee, an option to repurchase a discontinued operation, and an equity method investment in the discontinued operation. The disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities for a not-for-profit entity).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For interim and annual reporting periods, an entity shall disclose information about its significant continuing involvement with a discontinued operation after the disposal date. Examples of continuing involvement with a discontinued operation after the disposal date include a supply and distribution agreement, a financial guarantee, an option to repurchase a discontinued operation, and an equity method investment in the discontinued operation. The disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities for a not-for-profit entity).
205-20-50-4B
An entity shall disclose the following in the notes to financial statements for each discontinued operation in which the entity retains significant continuing involvement after the disposal date:
  1. a
    A description of the nature of the activities that give rise to the continuing involvement.
  2. b
    The period of time during which the involvement is expected to continue.
  3. c
    For all periods presented, both of the following:
    1. 1
      The amount of any cash inflows or outflows from or to the discontinued operation after the disposal transaction
    2. 2
      Revenues or expenses presented, if any, in continuing operations after the disposal transaction that before the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions.
  4. d
    For a discontinued operation in which an entity retains an equity method investment after the disposal (the investee), information that enables users of financial statements to compare the financial performance of the entity from period to period assuming that the entity held the same equity method investment in all periods presented in the statement where net income is reported (or statement of activities for a not-for-profit entity). The disclosure shall include all of the following until the discontinued operation is no longer reported separately in discontinued operations:
    1. 1
      For each period presented in the statement where net income is reported (or statement of activities for a not-for-profit entity) after the period in which the discontinued operation was disposed of, the pretax income of the investee in which the entity retains an equity method investment
    2. 2
      The entity's ownership interest in the discontinued operation before the disposal transaction
    3. 3
      The entity's ownership interest in the investee after the disposal transaction
    4. 4
      The entity's share of the income or loss of the investee in the period(s) after the disposal transaction and the line item in the statement where net income is reported (or statement of activities for a not-for-profit entity) that includes the income or loss.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For interim and annual reporting periods, an entity shall disclose the following in the notes to financial statements for each discontinued operation in which the entity retains significant continuing involvement after the disposal date:
  1. a
    A description of the nature of the activities that give rise to the continuing involvement.
  2. b
    The period of time during which the involvement is expected to continue.
  3. c
    For all periods presented, both of the following:
    1. 1
      The amount of any cash inflows or outflows from or to the discontinued operation after the disposal transaction
    2. 2
      Revenues or expenses presented, if any, in continuing operations after the disposal transaction that before the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions.
  4. d
    For a discontinued operation in which an entity retains an equity method investment after the disposal (the investee), information that enables users of financial statements to compare the financial performance of the entity from period to period assuming that the entity held the same equity method investment in all periods presented in the statement where net income is reported (or statement of activities for a not-for-profit entity). The disclosure shall include all of the following until the discontinued operation is no longer reported separately in discontinued operations:
    1. 1
      For each period presented in the statement where net income is reported (or statement of activities for a not-for-profit entity) after the period in which the discontinued operation was disposed of, the pretax income of the investee in which the entity retains an equity method investment
    2. 2
      The entity's ownership interest in the discontinued operation before the disposal transaction
    3. 3
      The entity's ownership interest in the investee after the disposal transaction
    4. 4
      The entity's share of the income or loss of the investee in the period(s) after the disposal transaction and the line item in the statement where net income is reported (or statement of activities for a not-for-profit entity) that includes the income or loss.

Disclosures Required for a Discontinued Operation Comprising a Component or Group of Components of an Entity

205-20-50-5A
Paragraphs
205-20-50-5B through 50-5D
provide disclosures required for discontinued operations that meet the criteria in paragraphs
205-20-45-1B through 45-1C
except for a discontinued operation that was an equity method investment before the disposal. For disclosures required for discontinued operations that were equity method investments before the disposal, see paragraph 205-20-50-7.
205-20-50-5B
An entity shall disclose, to the extent not presented on the face of the financial statements as part of discontinued operations, all of the following in the notes to financial statements:
  1. a
    The pretax profit or loss (or change in net assets for a not-for-profit entity) of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  2. b
    The major classes of line items constituting the pretax profit or loss (or change in net assets for a not-for-profit entity) of the discontinued operation (for example, revenue, cost of sales, depreciation and amortization, and interest expense) for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  3. c
    Either of the following:
    1. 1
      The total operating and investing cash flows of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity)
    2. 2
      The depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  4. d
    If the discontinued operation includes a noncontrolling interest, the pretax profit or loss (or change in net assets for a not-for-profit entity) attributable to the parent for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  5. e
    The carrying amount(s) of the major classes of assets and liabilities included as part of a discontinued operation classified as held for sale for the period in which the discontinued operation is classified as held for sale and all prior periods presented in the statement of financial position. Any loss recognized on the discontinued operation classified as held for sale in accordance with paragraphs
    205-20-45-3B through 45-3C
    shall not be allocated to the major classes of assets and liabilities of the discontinued operation.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For interim and annual reporting periods, an entity shall disclose, to the extent not presented on the face of the financial statements as part of discontinued operations, all of the following in the notes to financial statements:
  1. a
    The pretax profit or loss (or change in net assets for a not-for-profit entity) of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  2. b
    The major classes of line items constituting the pretax profit or loss (or change in net assets for a not-for-profit entity) of the discontinued operation (for example, revenue, cost of sales, depreciation and amortization, and interest expense) for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  3. c
    Either of the following:
    1. 1
      The total operating and investing cash flows of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity)
    2. 2
      The depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operation for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  4. d
    If the discontinued operation includes a noncontrolling interest, the pretax profit or loss (or change in net assets for a not-for-profit entity) attributable to the parent for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
  5. e
    The carrying amount(s) of the major classes of assets and liabilities included as part of a discontinued operation classified as held for sale for the period in which the discontinued operation is classified as held for sale and all prior periods presented in the statement of financial position. Any loss recognized on the discontinued operation classified as held for sale in accordance with paragraphs
    205-20-45-3B through 45-3C
    shall not be allocated to the major classes of assets and liabilities of the discontinued operation.
205-20-50-5C
If an entity provides the disclosures required by paragraph 205-20-50-5B(a), (b), and (e) in the notes to financial statements, the entity shall disclose the following:
  1. a
    For the initial period in which the disposal group is classified as held for sale and for all prior periods presented in the statement of financial position, a reconciliation of both of the following:
    1. 1
      The amounts disclosed in paragraph 205-20-50-5B(e)
    2. 2
      Total assets and total liabilities of the disposal group classified as held for sale that are presented separately on the face of the statement of financial position. If the disposal group includes assets and liabilities that are not part of the discontinued operation, an entity shall present those assets and liabilities in line items in the reconciliations that are separate from the assets and liabilities of the discontinued operation (see paragraph 205-20-55-102 for an Example).
  2. b
    For the periods in which the results of operations of the discontinued operation are reported in the statement where net income is reported (or statement of activities for a not-for-profit entity), a reconciliation of both of the following:
    1. 1
      The amounts disclosed in paragraph 205-20-50-5B(a) and (b)
    2. 2
      The after-tax profit or loss from discontinued operations presented on the face of the statement where net income is reported (or statement of activities for a not-for-profit entity) (see paragraph 205-20-55-103 for an Example).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1If an entity provides the disclosures required by paragraph 205-20-50-5B(a), (b), and (e) in the notes to financial statements, the entity shall disclose the following in interim and annual reporting periods:
  1. a
    For the initial period in which the disposal group is classified as held for sale and for all prior periods presented in the statement of financial position, a reconciliation of both of the following:
    1. 1
      The amounts disclosed in paragraph 205-20-50-5B(e)
    2. 2
      Total assets and total liabilities of the disposal group classified as held for sale that are presented separately on the face of the statement of financial position. If the disposal group includes assets and liabilities that are not part of the discontinued operation, an entity shall present those assets and liabilities in line items in the reconciliations that are separate from the assets and liabilities of the discontinued operation (see paragraph 205-20-55-102 for an Example).
  2. b
    For the periods in which the results of operations of the discontinued operation are reported in the statement where net income is reported (or statement of activities for a not-for-profit entity), a reconciliation of both of the following:
    1. 1
      The amounts disclosed in paragraph 205-20-50-5B(a) and (b)
    2. 2
      The after-tax profit or loss from discontinued operations presented on the face of the statement where net income is reported (or statement of activities for a not-for-profit entity) (see paragraph 205-20-55-103 for an Example).
205-20-50-5D
For purposes of the reconciliation in paragraph 205-20-50-5C(a) or (b), an entity may aggregate the amounts that are not considered major and present them as one line item in the reconciliation.
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For purposes of the reconciliation in paragraph 205-20-50-5C(a) or (b), an entity may aggregate the amounts that are not considered major and present them as one line item in the reconciliation in interim and annual reporting periods.

Disclosures Required for a Discontinued Operation Comprising an Equity Method Investment

205-20-50-7
For an equity method investment that meets the criteria in paragraphs
205-20-45-1B through 45-1C
, an entity shall disclose summarized information about the assets, liabilities, and results of operations of the investee if that information was disclosed in financial reporting periods before the disposal in accordance with paragraph 323-10-50-3(c).
Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance:
270-10-65-1For an equity method investment that meets the criteria in paragraphs
205-20-45-1B through 45-1C
, an entity shall disclose summarized information about the assets, liabilities, and results of operations of the investee in interim and annual reporting periods if that information was disclosed in financial reporting periods before the disposal in accordance with paragraph 323-10-50-3(c).

205-20-55Implementation Guidance and Illustrations

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Implementation Guidance

205-20-55-82
The following flowchart provides an overview of the disclosures required for discontinued operations.
  • "Does the entity have a discontinued operation under the criteria in paragraphs 205-20-45-1A through 45-1D?" Not a discontinued operation. See the flowchart in paragraph 360-10-55-18A for the required disclosures for the impairment or disposal of a long-lived asset. No "Disclose the following in the notes to financial statements that cover the period in which a discontinued operation either has been disposed of or is classified as held for sale under the requirements of paragraph 205-20-45-1E (see paragraph 205-20-50-1):" Yes a. A description of both the facts and circumstances leading to the disposal or expected disposal and the expected manner and timing of that disposal. "b. If not separately presented on the face of the statement where net income is reported (or statement of activities for a not-for-profit entity) as part of discontinued operations (see paragraph 205-20-45-3B), the gain or loss recognized in accordance with paragraph 205-20-45-3C." "d. If applicable, the segment(s) in which the discontinued operation is reported under Topic 280 on segment reporting." Required Disclosures for a Discontinued Operation "Did the entity change its plan of sale as addressed in paragraph 360-10-35-44 or 360-10-35-45?" "In the period in which the decision is made to change the plan for selling the discontinued operation, disclose in the notes to financial statements a description of the facts and circumstances leading to the decision to change that plan and the change's effect on the results of operations for the period and any prior periods presented (see paragraph 205-20-50-3)." Yes No Did the entity have any adjustments to amounts previously reported in discontinued operations? Disclose the nature and amount of adjustments to amounts previously reported in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period. See paragraph 205-20-45-5 for examples of circumstances in which those types of adjustments may arise (see paragraph 205-20-50-3A). Yes "Did the entity have continuing involvement?" No A Yes B No
  • Disclosures are complete for a discontinued operation that is a business or nonprofit activity held for sale at acquisition or a joint venture upon formation. "Disclose the summarized information about the assets, liabilities, and results of operations of the investee if that information was disclosed in financial reporting periods before the disposal in accordance with paragraph 323-10-50-3(c) (see paragraph 205-20-50-7)." a. The pretax profit or loss (or change in net assets) of the discontinued operation. b. The major classes of line items constituting the pretax profit or loss (or change in net assets) of the discontinued operation. "Was the discontinued operation an equity method investment before the disposal?" "To the extent not presented on the face of the financial statements as part of discontinued operations, disclose all of the following in the notes to financial statements for the periods in which the results of operations of the discontinued operation are presented in the statement where net income is reported (or statement of activities) or for the period in which the discontinued operation is classified as held for sale and all prior periods presented in the statement of financial position (as applicable) (see paragraph 205-20-50-5B):" "d. If the discontinued operation includes a noncontrolling interest, the pretax profit or loss (or change in net assets) attributable to the parent." e. The carrying amount(s) of the major classes of assets and liabilities included as part of a discontinued operation classified as held for sale. "Which criterion does the discontinued operation meet?" 205-20-45-1D 205-20-45-1B through 45-1C C "c. Either the total operating and investing cash flows of the discontinued operation or the depreciation, amortization, capital expenditures, and significant operating and investing noncash items of the discontinued operation." Disclose information about an entity's significant continuing involvement with a discontinued operation after the disposal date. The disclosures are required until the results of operations of the discontinued operation in which an entity retains significant continuing involvement are no longer presented separately as discontinued operations in the statement where net income is reported (or statement of activities). Disclose the following for each discontinued operation in which the entity retains significant continuing involvement after the disposal date (see paragraphs 205-20-50-4A through 50-4B): a. A description of the nature of the activities that give rise to the continuing involvement. b. The period of time during which the involvement is expected to continue. "c. For all periods presented, both the amount of any cash inflows or outflows from or to the discontinued operation after the disposal transaction and revenues or expenses presented, if any, in continuing operations after the disposal transaction that before the disposal transaction were eliminated in consolidated financial statements as intra-entity transactions." "d. For a discontinued operation in which an entity retains an equity method investment after the disposal (the investee), information that enables users of financial statements to compare the financial performance of the entity from period to period assuming that the entity held the same equity method investment in all periods presented in the statement where net income is reported (or statement of activities). The disclosure should include all of the following until the discontinued operation is no longer reported separately in discontinued operations:" "1. For each period presented in the statement where net income is reported (or statement of activities) after the period in which the discontinued operation was disposed of, the pretax income of the discontinued operation in which the entity retains an equity method investment." 2. The entity's ownership interest in the discontinued operation before the disposal transaction. 3. The entity's ownership interest in the investee after the disposal transaction. 4. The entity's share of the income or loss of the investee in the period(s) after the disposal transaction and the line item in the statement where net income is reported (or statement of activities) that includes the income or loss. A B No Yes
  • "Did the entity provide the disclosures required by paragraph 205-20-50-5B(a), (b), and (e)?" "Disclose the following (may aggregate the amounts that are not considered major and present them as one line item in the reconciliation) (see paragraphs 205-20-50-5C through 50-5D):" Disclosures are complete. Yes No 1. The amounts required to be disclosed in paragraph 205-20-50-5B(e). "2. Total assets and total liabilities of the disposal group classified as held for sale that are presented separately on the face of the statement of financial position. If the disposal group includes assets and liabilities that are not part of the discontinued operation, present those assets and liabilities in line items in the reconciliations that are separate from the assets and liabilities of the discontinued operation." "a. For the initial period in which the disposal group is classified as held for sale and for all prior periods presented in the statement of financial position, a reconciliation of both:" "b. For the periods in which the results of operations of the discontinued operation are reported in the statement where net income is reported (or statement of activities), a reconciliation of both:" 1. The amounts required to be disclosed in paragraph 205-20-50-5B(a) and (b). 2. The after-tax profit or loss from discontinued operations presented on the face of the statement where net income is reported (or statement of activities). C

Illustrations

205-20-55-83
Examples 1 through 3 provide illustrations of the guidance in paragraphs
205-20-45-1B through 45-1C
on disposals of groups of components of an entity representing strategic shifts that have a major effect on the entity's operations and financial results and are reported in discontinued operations.
205-20-55-84
An entity manufactures and sells consumer products that are grouped into five major product lines. Each product line includes several brands that comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, for that entity, each major product line includes a group of components of the entity.
205-20-55-85
The entity has experienced high growth in its discount cleaning product line that has lower price points than its premium cleaning product line. Total revenues from the discount cleaning product line are 15 percent of the entity's total revenues; however, the discount cleaning product line will require significant future investments to increase its profits. Therefore, the entity decides to shift its strategy of selling cleaning products at multiple price points and focus solely on selling cleaning products at a premium price point. As a result, the entity decides to sell the discount cleaning product line.
205-20-55-86
Because the entity shifts its strategy of offering discount cleaning products to consumers and because the discount cleaning product line is one of five major product lines that is a major part of the entity's operations and financial results, the disposal represents a strategic shift that is reported in discontinued operations.
205-20-55-87
An entity manufactures and sells food products that are grouped into five major geographical areas (Europe, Asia, Africa, the Americas, and Oceania). Each major geographical area includes several brands that comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, for that entity, each major geographical area includes a group of components of the entity.
205-20-55-88
The entity has experienced slower growth in its operations located in the Americas, which accounts for 20 percent of the entity's total assets. Therefore, the entity decides to shift its strategy of selling food products in that geographical area and focus its resources on manufacturing and marketing food products in its other four higher growth geographical areas. As a result, the entity decides to sell its operations in the Americas.
205-20-55-89
Because the entity's operations in the Americas is one of five major geographical areas that is a major part of the entity's operations and financial results, the disposal represents a strategic shift that is reported in discontinued operations.
205-20-55-90
An entity that is a general merchandise retailer operates 1,000 retail stores in 2 different store formats—malls and supercenter stores—throughout the United States. The entity divides its stores into five major geographical regions: the Northwest, Southwest, Midwest, Northeast, and Southeast. For that entity, each retail store comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, for that entity, each retail store is a component of the entity.
205-20-55-91
The entity has experienced declining net income at its 200 stores located in malls across all 5 major geographical regions. Historically, net income from the 200 stores in malls has been in a range of 30 to 40 percent of the entity's total net income. Total net income from the 200 stores in malls is down to 15 percent of the entity's total net income because of declining customer traffic in malls. Therefore, the entity decides to shift its strategy of selling products in malls and sell the 200 stores located in malls.
205-20-55-92
Because the entity decides to shift its strategy of selling products in malls and focus solely on its supercenter stores and because the 200 stores located in malls are a major part of the entity's operations and financial results, the disposal represents a strategic shift that is reported in discontinued operations.
205-20-55-93
This Example provides an illustration of the guidance in paragraphs
205-20-45-1B through 45-1C
. In this Example, the entity disposes of a component of an entity that is an equity method investment representing a strategic shift that has a major effect on the entity's operations and financial results and is reported in discontinued operations.
205-20-55-94
An entity that follows the successful-efforts method of accounting produces oil and gas in two major geographical areas (Europe and Africa) that are each divided into several regions. Each region comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, for that entity, each major geographical area includes a group of components of the entity.
205-20-55-95
In its operations located in Africa, the entity operates through a joint venture with another entity that is accounted for by the reporting entity as an equity method investment. The entity's carrying amount of its investment in the joint venture is 20 percent of the entity's total assets. Because of significant investments needed in its operations in Europe, the entity decides to shift its strategy of operating in Africa to focus on its operations in Europe and sell its stake in the joint venture.
205-20-55-96
Because the entity shifts its strategy of operating a joint venture to focus on its operations in Europe where it maintains full control and because its operations in Africa are a major part of the entity's operations and financial results, its disposal represents a strategic shift that is reported in discontinued operations.
205-20-55-97
This Example provides an illustration of the guidance in paragraphs
205-20-45-1B through 45-1C
. In this Example, the entity sells 80 percent of a group of components of an entity representing a strategic shift that has a major effect on the entity's operations and financial results and is reported in discontinued operations.
205-20-55-98
An entity that manufactures and sells sports equipment has two product lines that serve the football and baseball markets. Each product line includes several different brands that each comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Therefore, for that entity, each product line includes a group of components of the entity.
205-20-55-99
The entity decides to shift its strategy of trying to sell products to the baseball equipment market, which accounts for 40 percent of its revenues, and focus more on serving its customers in the football equipment market. However, the entity decides to retain some exposure to the baseball equipment market by selling only 80 percent of the group of components in its product line that serves the baseball market to another entity.
205-20-55-100
Because the entity decides to shift its strategy of trying to sell products to the baseball equipment market by selling 80 percent of the group of components of the entity in that product line and because the portion sold comprises a major part of the entity's operations and financial results, its disposal represents a strategic shift that is reported in discontinued operations.
205-20-55-101
Because of the entity's significant continuing involvement after the disposal date, the entity provides the disclosures required by paragraphs
205-20-50-4A through 50-4B
.
205-20-55-102
The table in this illustration provides one example of how to disclose the reconciliation required by paragraph 205-20-50-5C(a).
  • "Reconciliation of the Carrying Amounts of Major Classes of Assets and Liabilities of the Discontinued Operation That Are Disclosed in the Notes to Financial Statements to Total Assets and Liabilities of the Disposal Group Classified as Held for Sale That Are Presented Separately in the Statement of Financial Position (in thousands of currency units)" 20X4 20X3 Carrying amounts of major classes of assets included as part of discontinued operations Cash $ XX $ XX Trade receivables XX XX Inventories XX XX "Property, plant, and equipment" XX XX Other classes of assets that are not major XX XX Total major classes of assets of the discontinued operation XX XX Other assets included in the disposal group classified as held for sale XX XX Total assets of the disposal group classified as held for sale in the statement of financial position $ XX $ XX Carrying amounts of major classes of liabilities included as part of discontinued operations Trade payables $ XX $ XX Short-term borrowings XX XX Other classes of liabilities that are not major XX XX Total major classes of liabilities of the discontinued operation XX XX Other liabilities included in the disposal group classified as held for sale XX XX Total liabilities of the disposal group classified as held for sale in the statement of financial position $ XX $ XX
205-20-55-103
The table in this illustration provides one example of how to disclose the reconciliation required by paragraph 205-20-50-5C(b).
  • "Reconciliation of the Major Classes of Line Items Constituting Pretax Profit (Loss) of Discontinued Operations That Are Disclosed in the Notes to Financial Statements to the After-Tax Profit or Loss of Discontinued Operations That Are Presented in the Statement Where Net Income Is Presented (in thousands of currency units)" 20X4 20X3 Major classes of line items constituting pretax profit (loss) of discontinued operations Revenue $ XX $ XX Cost of sales (XX) (XX) "Selling, general, and administrative expenses" (XX) (XX) Interest expense (XX) (XX) Other income and expense items that are not major (XX) (XX) Pretax profit or loss of discontinued operations related to major classes of pretax profit (loss) XX XX Pretax gain or loss on the disposal of the discontinued operation XX Total pretax gain or loss on discontinued operations XX XX Income tax expense or benefit XX XX Total profit or loss on discontinued operations that is presented in the statement where net income is presented $ XX $ XX

205-20-60Relationships

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Earnings Per Share

205-20-60-1
For guidance on the presentation of basic and diluted per-share amounts for entities that report discontinued operations, see paragraph 260-10-45-3.
205-20-60-2
For guidance on the control number to use in determining whether potential common shares are dilutive or antidilutive for entities that report discontinued operations, see paragraph 260-10-45-18.

Segment Reporting

205-20-60-3
For guidance on the reporting and financial statement disclosure requirements for a component of an entity that is reported as a discontinued operation and is a reportable segment, see paragraph 280-10-55-7.

Intangibles—Goodwill and Other

205-20-60-4
For guidance on reporting a goodwill impairment loss associated with a discontinued operation, see paragraph 350-20-45-3.

Compensation—Retirement Benefits

205-20-60-5
For guidance on accounting for the effect on pension obligations of a reduction in work force associated with discontinued operations, see paragraphs
715-30-55-193 through 55-197
.

205-20-65Transition and Open Effective Date Information

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205-20-65-1
Paragraph superseded on 07/05/2017 after the end of the transition period stated in Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

205-20-S00StatusSEC

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205-20-S00-1
The following table identifies the changes made to this Subtopic.
Paragraph NumberActionAccounting Standards UpdateDate
205-20-S99-1AmendedAccounting Standards Update No. 2012-0308/27/2012
205-20-S99-2AmendedAccounting Standards Update No. 2012-0308/27/2012

205-20-S45Other Presentation MattersSEC

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Reporting Discontinued Operations

205-20-S45-1
See paragraph 205-20-S99-1, SAB Topic 5.Z.4, for SEC Staff views on classification of disposal of operations when a significant interest is retained.

Disposal of a Component of an Entity

205-20-S45-2
See paragraph 205-20-S99-2, SAB Topic 5.Z.5, for SEC Staff views on classification of contingencies relating to discontinued operations.

205-20-S50DisclosureSEC

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Allocation of Interest to Discontinued Operations

205-20-S50-1
See paragraph 205-20-S99-3, SEC Observer Comment: Allocation of Interest to Discontinued Operations, for SEC Staff views on disclosure of an accounting policy related to allocation of interest to discontinued operations.

Reporting Discontinued Operations

205-20-S50-2
See paragraph 270-10-S99-1(b)(5), Regulation S-X Rule 10-01(b)(5), for disclosure requirements pertaining to the effect of the disposition of any significant segment.

205-20-S99SEC MaterialsSEC

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SEC Staff Guidance

205-20-S99-1
The following is the text of SAB Topic 5.Z.4, Disposal of Operation with Significant Interest Retained.
  • Facts: A Company disposes of its controlling interest in a component of an entity as defined by FASB ASC Master Glossary. The Company retains a minority voting interest directly in the component or it holds a minority voting interest in the buyer of the component. Controlling interest includes those controlling interests established through other means, such as variable interests. Because the Company's voting interest enables it to exert significant influence over the operating and financial policies of the investee, the Company is required by FASB ASC Subtopic 323-10, Investments—Equity Method and Joint Ventures—Overall, to account for its residual investment using the equity method. FN54
    • FN54 In some circumstances, the seller's continuing interest may be so great that divestiture accounting is inappropriate.
  • Question: May the historical operating results of the component and the gain or loss on the sale of the majority interest in the component be classified in the Company's statement of operations as "discontinued operations" pursuant to FASB ASC Subtopic 205-20, Presentation of Financial Statements—Discontinued Operations?
  • Interpretive Response: No. A condition necessary for discontinued operations reporting, as indicated in FASB ASC paragraph 205-20-45-1 is that an entity "not have any significant continuing involvement in the operations of the component after the disposal transaction." In these circumstances, the transaction should be accounted for as the disposal of a group of assets that is not a component of an entity and classified within continuing operations pursuant to FASB ASC paragraph 360-10-45-5 (Property, Plant, and Equipment Topic). FN55
    • FN55 However, a plan of disposal that contemplates the transfer of assets to a limited-life entity created for the single purpose of liquidating the assets of a component of an entity would not necessitate classification within continuing operations solely because the registrant retains control or significant influence over the liquidating entity.
205-20-S99-2
The following is the text of SAB Topic 5.Z.5, Classification and Disclosure of Contingencies Relating to Discontinued Operations.
  • Facts: A company disposed of a component of an entity in a previous accounting period. The Company received debt and/or equity securities of the buyer of the component or of the disposed component as consideration in the sale, but this financial interest is not sufficient to enable the Company to apply the equity method with respect to its investment in the buyer. The Company made certain warranties to the buyer with respect to the discontinued business, or remains liable under environmental or other laws with respect to certain facilities or operations transferred to the buyer. The disposition satisfied the criteria of FASB ASC Subtopic 205-20 for presentation as "discontinued operations." The Company estimated the fair value of the securities received in the transaction for purposes of calculating the gain or loss on disposal that was recognized in its financial statements. The results of discontinued operations prior to the date of disposal or classification as held for sale included provisions for the Company's existing obligations under environmental laws, product warranties, or other contingencies. The calculation of gain or loss on disposal included estimates of the Company's obligations arising as a direct result of its decision to dispose of the component, under its warranties to the buyer, and under environmental or other laws. In a period subsequent to the disposal date, the Company records a charge to income with respect to the securities because their fair value declined materially and the Company determined that the decline was other than temporary. The Company also records adjustments of its previously estimated liabilities arising under the warranties and under environmental or other laws.
  • Question 1: Should the writedown of the carrying value of the securities and the adjustments of the contingent liabilities be classified in the current period's statement of operations within continuing operations or as an element of discontinued operations?
  • Interpretive Response: Adjustments of estimates of contingent liabilities or contingent assets that remain after disposal of a component of an entity or that arose pursuant to the terms of the disposal generally should be classified within discontinued operations. FN56 However, the staff believes that changes in the carrying value of assets received as consideration in the disposal or of residual interests in the business should be classified within continuing operations.
    • FN56 Registrants are reminded that FASB ASC Topic 460, Guarantees requires recognition and disclosure of certain guarantees which may impose accounting and disclosure requirements in addition to those discussed in this SAB Topic.
  • FASB ASC paragraph 205-20-45-4 requires that "adjustments to amounts previously reported in discontinued operations that are directly related to the disposal of a component of an entity in a prior period shall be classified separately in the current period in discontinued operations." The staff believes that the provisions of FASB ASC paragraph 205-20-45-4 apply only to adjustments that are necessary to reflect new information about events that have occurred that becomes available prior to disposal of the component of the entity, to reflect the actual timing and terms of the disposal when it is consummated, and to reflect the resolution of contingencies associated with that component, such as warranties and environmental liabilities retained by the seller.
  • Developments subsequent to the disposal date that are not directly related to the disposal of the component or the operations of the component prior to disposal are not "directly related to the disposal" as contemplated by FASB ASC paragraph 205-20-45-4. Subsequent changes in the carrying value of assets received upon disposition of a component do not affect the determination of gain or loss at the disposal date, but represent the consequences of management's subsequent decisions to hold or sell those assets. Gains and losses, dividend and interest income, and portfolio management expenses associated with assets received as consideration for discontinued operations should be reported within continuing operations.
  • Question 2: What disclosures would the staff expect regarding discontinued operations prior to the disposal date and with respect to risks retained subsequent to the disposal date?
  • Interpretive Response: MD&A FN57 should include disclosure of known trends, events, and uncertainties involving discontinued operations that may materially affect the Company's liquidity, financial condition, and results of operations (including net income) between the date when a component of an entity is classified as discontinued and the date when the risks of those operations will be transferred or otherwise terminated. Disclosure should include discussion of the impact on the Company's liquidity, financial condition, and results of operations of changes in the plan of disposal or changes in circumstances related to the plan. Material contingent liabilities, FN58 such as product or environmental liabilities or litigation, that may remain with the Company notwithstanding disposal of the underlying business should be identified in notes to the financial statements and any reasonably likely range of possible loss should be disclosed pursuant to FASB ASC Topic 450, Contingencies. MD&A should include discussion of the reasonably likely effects of these contingencies on reported results and liquidity. If the Company retains a financial interest in the discontinued component or in the buyer of that component that is material to the Company, MD&A should include discussion of known trends, events, and uncertainties, such as the financial condition and operating results of the issuer of the security, that may be reasonably expected to affect the amounts ultimately realized on the investments.
    • FN57 Item 303 of Regulation S-K.
    • FN58 Registrants also should consider the disclosure requirements of FASB ASC Topic 460.
205-20-S99-3
The following is the text of SEC Observer Comment: Allocation of Interest to Discontinued Operations.
  • The SEC staff will expect registrants electing to allocate interest in accordance with paragraph 205-20-45-6 to clearly disclose the accounting policy (including the method of allocation) and the amount allocated to and included in discontinued operations for all periods presented.

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