Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood
that as more is known, the disclosure will become more extensive. If the substantial doubt is resolved in a subsequent period, the entity must disclose how it was resolved. (ASC 205‐40‐50‐14)
PRESENTATION AND DISCLOSURE EXAMPLES
Example 2.1: Reclassification
During the first quarter of fiscal 20X3, the Company evaluated the impact of the organizational restructuring program (see Note X) on the determination of its operating segments and reporting units. The Company concluded that its operating and reportable segments continue to be Candles, Home Furnishings, and Body Care. However, based on the organizational changes that result from the organizational restructuring and the impact on the information used by the Chief Operating Decision Maker (CODM), the Company reclassified the revenues and costs associated with one brand from the Body Care to the Candles operating segment. The revenues and costs associated with the reclassification of one brand from Body Care to Candles Care have been reflected for the fiscal years ending 20X3 and 20X2. Further, the Company has reclassified amounts presented for depreciation and amortization to reflect the fully allocated amounts included in Operating income (loss) of the segments.
Example 2.2: Income Statement Presentation for Discontinued Operations—Face of the Income Statement
| 20X3 | 20X2 | |
| Income from continuing operations before income taxes | $ 598 | $ 583 |
| Income taxes | 239 | 233 |
| Income from continuing operations | 359 | 350 |
| Discontinued operations (Note X) | ||
| Loss from operations of discontinued component | 1,165 | 1,045 |
| Loss on disposal of discontinued component | 167 | |
| Income tax benefit | (532) | (418) |
| Loss on discontinued operations | 800 | 627 |
| Net income | $ (441) | $ (277) |
This example shows the loss on disposal on the face of the income statement. Alternatively, the amount can be shown in the notes to the financial statements, as long as the disclosure identifies the caption in the income statement in which the loss is included.
Example 2.3: Computing the Gain or Loss on Disposal in the Year in Which the Discontinued Operation Is Classified as Held for Sale
Today's Telecommunications has decided to close its pager division, which is a component of the reporting entity. This represents a strategic shift to focus on other divisions of the business. Today's Telecommunications has committed to a plan to sell the assets and liabilities of the division and has properly reclassified the division as held‐for‐sale at that date. The following conditions apply:
The division has incurred $1,750 in losses from operations from the beginning of the year to the date it was reclassified as held‐for‐sale.
The fair value of the assets and liabilities of the division are $10,775.
Brokers’ commissions and other costs to sell are estimated to be $1,650.
The carrying value of the assets and liabilities of the division is $12,525 before the adjustments (depreciation, amortization, adjustment of valuation accounts, and similar periodic adjustments) are made.
The adjustments reduce the carrying value of the assets and liabilities by $125.
Losses from operations of the division from the date it is classified as held‐for‐sale to the end of the fiscal year are $580. (This loss does not include the GAAP adjustments noted above.)
Anticipated future losses from operations of the division from the end of this fiscal year to the expected sales date are $1,999.
The tax rate is 40%.
The income statement presentation of discontinued operations would be:
| Discontinued operations (Note X) | |
| Loss from operations of discontinued division, net of tax of $982 | $1,473 |
| Loss on disposal of discontinued division, net of tax of $1,310 | 1,965 |
| Loss on discontinued operations | $3,438 |
The loss from operations of the discontinued pager division is the sum of the $1,750 loss incurred prior to the date the assets and liabilities were classified as held‐for‐sale, plus the $125 adjustments that were recorded, plus the $580 loss incurred from the date the division was classified as held‐for‐sale to the end of the fiscal year. The sum ($2,455) less the tax effects of $982 ($2,455 × 40%) is the loss from operations of $1,473.
The loss on disposal is the difference between the carrying value of the division and its fair value less costs to sell. The carrying value of the division is $12,400 ($12,525 less the adjustments of $125). The fair value of the division less costs to sell is $9,125 ($10,775 fair value less costs to sell of $1,650). The difference of $3,275 less the tax effects of $1,310 ($3,275 × 40%) is the loss on disposal of $1,965. The anticipated future losses from operations of the division will be reported in discontinued operations in the future period in which they occur. They are not included in the loss on disposal in the current fiscal year.
Example 2.4: Discontinued Operations—Adjustment of Loss Repeated in a Prior Period as a Discontinued Operation
Continuing the previous example, the sale of Today's Telecommunications’ pager division, which is a component of the entity, closed in the year subsequent to the fiscal year in which the assets and liabilities were classified as held‐for‐sale.
The actual sales price less costs to sell was $9,725.
The net carrying value of the assets and liabilities on the date of sale was $12,225.
The loss from operations from the end of the fiscal year to the date of sale was $2,045.
The tax rate is 40%.
The income statement presentation of discontinued operations would be:
| Discontinued operations (Note X) | |
| Loss from operations of discontinued division, net of tax of $818 | 1,227 |