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International Accounting Standards

IAS 35 Discontinuing Operations

This International Accounting Standard was approved by the IASC Board in April
1998 and became effective for financial statements covering periods beginning on or
after 1 January 1999.

This Standard supersedes paragraphs 19-22 of IAS 8, Net Profit or Loss for the
Period, Fundamental Errors and Changes in Accounting Policies.

In 1999, paragraph 8 of the introduction, paragraphs 20, 21, 29, 30 and 32 of the
Standard, and paragraph 4 of appendix B were amended to conform to the terminology
used in IAS 10 (revised 1999), Events After the Balance Sheet Date and IAS 37,
Provisions, Contingent Liabilities and Contingent Assets.

Introduction
1. This Standard ('IAS 35') addresses presentation and disclosures relating to
discontinuing operations. That matter had been dealt with relatively briefly in
paragraphs 19-22 of IAS 8, Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies. IAS 35 supersedes those paragraphs of IAS 8. IAS
35 is effective for financial statements for periods beginning on or after 1 January
1999. Earlier application is encouraged.

2. The objectives of IAS 35 are to establish a basis for segregating information about a
major operation that an enterprise is discontinuing from information about its
continuing operations and to specify minimum disclosures about a discontinuing
operation. Distinguishing discontinuing and continuing operations improves the ability
of investors, creditors, and other users of financial statements to make projections of
the enterprise's cash flows, earnings-generating capacity, and financial position.

3. A discontinuing operation is a relatively large component of an enterprise - such as

a business or geographical segment under IAS 14, Segment Reporting - that the
enterprise, pursuant to a single plan, either is disposing of substantially in its entirety
or is terminating through abandonment or piecemeal sale.

4. This Standard uses the term "discontinuing operation" rather than the traditional
"discontinued operation" because "discontinued operation" (past tense) implies that
recognition of a discontinuance is necessary only at or near the end of the process of
discontinuing the operation. This Standard requires that disclosures about a
discontinuing operation begin earlier than that - when a detailed formal plan for
disposal has been adopted and announced or when the enterprise has already
contracted for the disposal.

5. This is a presentation and disclosure Standard. It focuses on how to present a

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discontinuing operation in an enterprise's financial statements and what information to

disclose. It does not establish any new principles for deciding when and how to
recognise and measure the income, expenses, cash flows, and changes in assets and
liabilities relating to a discontinuing operation. Instead, it requires that enterprises
follow the recognition and measurement principles in other International Accounting
Standards.

6. Under this Standard, information about a planned discontinuance must initially be

disclosed in the first set of financial statements issued by an enterprise after (a) it has
entered into an agreement to sell substantially all of the assets of the discontinuing
operation or (b) its board of directors or other similar governing body has both
approved and announced the planned discontinuance. Required disclosures include:

a description of the discontinuing operation;

the business or geographical segment(s) in which it is reported;

the date and nature of the initial disclosure event;

the timing of expected completion;

the carrying amounts of the total assets and the total liabilities to be disposed of;

the amounts of revenue, expenses, and pre-tax profit or loss attributable to the
discontinuing operation, and related income tax expense;

the net cash flows attributable to the operating, investing, and financing activities of
the discontinuing operation;

the amount of any gain or loss that is recognised on the disposal of assets or settlement
of liabilities attributable to the discontinuing operation, and related income tax
expense; and

the net selling prices, after disposal costs, from the sale of those net assets for which
the enterprise has entered into one or more binding sale agreements, and the expected
timing thereof, and the carrying amounts of those net assets.

7. Financial statements for periods after initial disclosure must update those
disclosures, including a description of any significant changes in the amount or timing
of cash flows relating to the assets and liabilities to be disposed of or settled and the
causes of those changes.

8. The disclosures would be made if a plan for disposal is approved and publicly
announced after the end of an enterprise's financial reporting period but before the
financial statements for that period are authorised for issue. The disclosures continue
until completion of the disposal.

9. Comparative information for prior periods that is presented in financial statements

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prepared after initial disclosure must be restated to segregate the continuing and
discontinuing assets, liabilities, income, expenses, and cash flows. By separating
discontinuing and continuing operations retrospectively, the ability of a user of
financial statements to make projections is improved.

The standards, which have been set in bold italic type, should be read in the context of
the background material and implementation guidance in this Standard, and in the
context of the Preface to International Accounting Standards. International Accounting
Standards are not intended to apply to immaterial items (see paragraph 12 of the
Preface).

Objective
The objective of this Standard is to establish principles for reporting information about
discontinuing operations, thereby enhancing the ability of users of financial statements
to make projections of an enterprise's cash flows, earnings-generating capacity, and
financial position by segregating information about discontinuing operations from
information about continuing operations.

Scope
1. This Standard applies to all discontinuing operations of all enterprises.

Definitions
Discontinuing Operation
2. A discontinuing operation is a component of an enterprise:

(a) that the enterprise, pursuant to a single plan, is:

(i) disposing of substantially in its entirety, such as by selling the component in a

single transaction, by demerger or spin-off of ownership of the component to the
enterprise's shareholders;

(ii) disposing of piecemeal, such as by selling off the component's assets and settling
its liabilities individually; or

(iii) terminating through abandonment;

(b) that represents a separate major line of business or geographical area of operations;
and

(c) that can be distinguished operationally and for financial reporting purposes.

3. Under criterion (a) of the definition (paragraph 2(a)), a discontinuing operation may
be disposed of in its entirety or piecemeal, but always pursuant to an overall plan to

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discontinue the entire component.

4. If an enterprise sells a component substantially in its entirety, the result can be a net
gain or net loss. For such a discontinuance, there is a single date at which a binding
sale agreement is entered into, although the actual transfer of possession and control of
the discontinuing operation may occur at a later date. Also, payments to the seller may
occur at the time of the agreement, at the time of the transfer, or over an extended
future period.

5. Instead of disposing of a major component in its entirety, an enterprise may

discontinue and dispose of the component by selling its assets and settling its
liabilities piecemeal (individually or in small groups). For piecemeal disposals, while
the overall result may be a net gain or a net loss, the sale of an individual asset or
settlement of an individual liability may have the opposite effect. Moreover, there is
no single date at which an overall binding sale agreement is entered into. Rather, the
sales of assets and settlements of liabilities may occur over a period of months or
perhaps even longer, and the end of a financial reporting period may occur part way
through the disposal period. To qualify as a discontinuing operation, the disposal must
be pursuant to a single co-ordinated plan.

6. An enterprise may terminate an operation by abandonment without substantial sales

of assets. An abandoned operation would be a discontinuing operation if it satisfies the
criteria in the definition. However, changing the scope of an operation or the manner
in which it is conducted is not an abandonment because that operation, although
changed, is continuing.

7. Business enterprises frequently close facilities, abandon products or even product

lines, and change the size of their work force in response to market forces. While
those kinds of terminations generally are not, in and of themselves, discontinuing
operations as that term is used in this Standard, they can occur in connection with a
discontinuing operation.

8. Examples of activities that do not necessarily satisfy criterion (a) of paragraph 2,

but that might do so in combination with other circumstances, include:

(a) gradual or evolutionary phasing out of a product line or class of service;

(b) discontinuing, even if relatively abruptly, several products within an ongoing line
of business;

(c) shifting of some production or marketing activities for a particular line of business
from one location to another;

(d) closing of a facility to achieve productivity improvements or other cost savings;

and

(e) selling a subsidiary whose activities are similar to those of the parent or other
subsidiaries.

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9. A reportable business segment or geographical segment as defined in IAS 14,

Segment Reporting, would normally satisfy criterion (b) of the definition of a
discontinuing operation (paragraph 2(b)), that is, it would represent a separate major
line of business or geographical area of operations. A part of a segment as defined in
IAS 14 may also satisfy criterion (b) of the definition. For an enterprise that operates
in a single business or geographical segment and therefore does not report segment
information, a major product or service line may also satisfy the criteria of the
definition.

10. IAS 14 permits, but does not require, that different stages of vertically integrated
operations be identified as separate business segments. Such vertically integrated
business segments may satisfy criterion (b) of the definition of a discontinuing
operation.

11. A component can be distinguished operationally and for financial reporting

purposes - criterion (c) of the definition (paragraph 2(c)) - if:

(a) its operating assets and liabilities can be directly attributed to it;

(b) its income (gross revenue) can be directly attributed to it; and

(c) at least a majority of its operating expenses can be directly attributed to it.

12. Assets, liabilities, income, and expenses are directly attributable to a component if
they would be eliminated when the component is sold, abandoned or otherwise
disposed of. Interest and other financing cost is attributed to a discontinuing operation
only if the related debt is similarly attributed.

13. As defined in this Standard, discontinuing operations are expected to occur

relatively infrequently. Some changes that are not classified as discontinuing
operations may qualify as restructurings (see IAS 37, Provisions, Contingent
Liabilities and Contingent Assets).

14. Also, some infrequently occurring events that do not qualify either as
discontinuing operations or restructurings may result in items of income or expense
that require separate disclosure pursuant to IAS 8, Net Profit or Loss for the Period,
Fundamental Errors and Changes in Accounting Policies, because their size, nature, or
incidence make them relevant to explain the performance of the enterprise for the
period.

15. The fact that a disposal of a component of an enterprise is classified as a

discontinuing operation under this Standard does not, in itself, bring into question the
enterprise's ability to continue as a going concern. IAS 1, Presentation of Financial
Statements, requires disclosure of uncertainties relating to an enterprise's ability to
continue as a going concern and of any conclusion that an enterprise is not a going
concern.

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Initial Disclosure Event

16. With respect to a discontinuing operation, the initial disclosure event is the
occurrence of one of the following, whichever occurs earlier:

(a) the enterprise has entered into a binding sale agreement for substantially all of the
assets attributable to the discontinuing operation; or

(b) the enterprise's board of directors or similar governing body has both (i) approved
a detailed, formal plan for the discontinuance and (ii) made an announcement of the
plan.

Recognition and Measurement

17. An enterprise should apply the principles of recognition and measurement that are
set out in other International Accounting Standards for the purpose of deciding when
and how to recognise and measure the changes in assets and liabilities and the income,
expenses, and cash flows relating to a discontinuing operation.

18. This Standard does not establish any recognition and measurement principles.
Rather, it requires that an enterprise follow recognition and measurement principles
established in other Standards. Two Standards that are likely to be relevant in this
regard are:

(a) IAS 36, Impairment of Assets; and

(b) IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

19. Other Standards that may be relevant include IAS 19, Employee Benefits, with
respect to recognition of termination benefits, and IAS 16, Property, Plant and
Equipment, with respect to disposals of those kinds of assets.

Provisions
20. A discontinuing operation is a restructuring as that term is defined in IAS 37,
Provisions, Contingent Liabilities and Contingent Assets. IAS 37 provides guidance
for certain of the requirements of this Standard, including:

(a) what constitutes a "detailed, formal plan for the discontinuance" as that term is
used in paragraph 16(b) of this Standard; and

(b) what constitutes an "announcement of the plan" as that term is used in paragraph
16(b) of this Standard.

21. IAS 37 defines when a provision should be recognised. In some cases, the event
that obligates the enterprise occurs after the end of a financial reporting period but
before the financial statements for that period have been authorised for issue.

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Paragraph 29 of this Standard requires disclosures about a discontinuing operation in

such cases.

Impairment Losses
22. The approval and announcement of a plan for discontinuance is an indication that
the assets attributable to the discontinuing operation may be impaired or that an
impairment loss previously recognised for those assets should be increased or
reversed. Therefore, in accordance with IAS 36, Impairment of Assets, an enterprise
estimates the recoverable amount of each asset of the discontinuing operation (the
higher of the asset's net selling price and its value in use) and recognises an
impairment loss or reversal of a prior impairment loss, if any.

23. In applying IAS 36 to a discontinuing operation, an enterprise determines whether

the recoverable amount of an asset of a discontinuing operation is assessed for the
individual asset or for the asset's cash-generating unit (defined in IAS 36 as the
smallest identifiable group of assets that includes the asset under review and that
generates cash inflows from continuing use that are largely independent of the cash
inflows from other assets or groups of assets). For example:

(a) if the enterprise sells the discontinuing operation substantially in its entirety, none
of the assets of the discontinuing operation generate cash inflows independently from
other assets within the discontinuing operation. Therefore, recoverable amount is
determined for the discontinuing operation as a whole and an impairment loss, if any,
is allocated among the assets of the discontinuing operation in accordance with IAS
36;

(b) if the enterprise disposes of the discontinuing operation in other ways such as
piecemeal sales, the recoverable amount is determined for individual assets, unless the
assets are sold in groups; and

(c) if the enterprise abandons the discontinuing operation, the recoverable amount is
determined for individual assets as set out in IAS 36.

24. After announcement of a plan, negotiations with potential purchasers of the

discontinuing operation or actual binding sale agreements may indicate that the assets
of the discontinuing operation may be further impaired or that impairment losses
recognised for these assets in prior periods may have decreased. As a consequence,
when such events occur, an enterprise re-estimates the recoverable amount of the
assets of the discontinuing operation and recognises resulting impairment losses or
reversals of impairment losses in accordance with IAS 36.

25. A price in a binding sale agreement is the best evidence of an asset's (cash-
generating unit's) net selling price or of the estimated cash inflow from ultimate
disposal in determining the asset's (cash-generating unit's) value in use.

26. The carrying amount (recoverable amount) of a discontinuing operation includes

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the carrying amount (recoverable amount) of any goodwill that can be allocated on a
reasonable and consistent basis to that discontinuing operation.

Presentation and Disclosure

Initial Disclosure
27. An enterprise should include the following information relating to a discontinuing
operation in its financial statements beginning with the financial statements for the
period in which the initial disclosure event (as defined in paragraph 16) occurs:

(a) a description of the discontinuing operation;

(b) the business or geographical segment(s) in which it is reported in accordance with

IAS 14;

(c) the date and nature of the initial disclosure event;

(d) the date or period in which the discontinuance is expected to be completed if

known or determinable;

(e) the carrying amounts, as of the balance sheet date, of the total assets and the total
liabilities to be disposed of;

(f) the amounts of revenue, expenses, and pre-tax profit or loss from ordinary
activities attributable to the discontinuing operation during the current financial
reporting period, and the income tax expense relating thereto as required by paragraph
81(h) of IAS 12; and

(g) the amounts of net cash flows attributable to the operating, investing, and
financing activities of the discontinuing operation during the current financial
reporting period.

28. In measuring the assets, liabilities, revenues, expenses, gains, losses, and cash
flows of a discontinuing operation for the purpose of the disclosures required by this
Standard, such items can be attributed to a discontinuing operation if they will be
disposed of, settled, reduced, or eliminated when the discontinuance is completed. To
the extent that such items continue after completion of the discontinuance, they should
not be allocated to the discontinuing operation.

29. If an initial disclosure event occurs after the end of an enterprise's financial
reporting period but before the financial statements for that period are authorised for
issue, those financial statements should include the disclosures specified in paragraph
27 for the period covered by those financial statements.

30. For example, the board of directors of an enterprise whose financial year ends 31
December 20x5 approves a plan for a discontinuing operation on 15 December 20x5

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and announces that plan on 10 January 20x6. The board authorises the financial
statements for 20x5 for issue on 20 March 20x6. The financial statements for 20x5
include the disclosures required by paragraph 27.

Other Disclosures
31. When an enterprise disposes of assets or settles liabilities attributable to a
discontinuing operation or enters into binding agreements for the sale of such assets or
the settlement of such liabilities, it should include in its financial statements the
following information when the events occur:

(a) for any gain or loss that is recognised on the disposal of assets or settlement of
liabilities attributable to the discontinuing operation, (i) the amount of the pre-tax gain
or loss and (ii) income tax expense relating to the gain or loss, as required by
paragraph 81(h) of IAS 12; and

(b) the net selling price or range of prices (which is after deducting the expected
disposal costs) of those net assets for which the enterprise has entered into one or
more binding sale agreements, the expected timing of receipt of those cash flows, and
the carrying amount of those net assets.

32. The asset disposals, liability settlements, and binding sale agreements referred to
in the preceding paragraph may occur concurrently with the initial disclosure event, or
in the period in which the initial disclosure event occurs, or in a later period. In
accordance with IAS 10, Events After the Balance Sheet Date, if some of the assets
attributable to a discontinuing operation have actually been sold or are the subject of
one or more binding sale agreements entered into after the financial year end but
before the board approves the financial statements for issue, the financial statements
include the disclosures required by paragraph 31 if non-disclosure would affect the
ability of the users of the financial statements to make proper evaluations and
decisions.

Updating the Disclosures

33. In addition to the disclosures in paragraphs 27 and 31, an enterprise should include
in its financial statements for periods subsequent to the one in which the initial
disclosure event occurs a description of any significant changes in the amount or
timing of cash flows relating to the assets and liabilities to be disposed of or settled
and the events causing those changes.

34. Examples of events and activities that would be disclosed include the nature and
terms of binding sale agreements for the assets, a demerger of the assets via spin-off of
a separate equity security to the enterprise's shareholders, and legal or regulatory
approvals.

35. The disclosures required by paragraphs 27-34 should continue in financial

statements for periods up to and including the period in which the discontinuance is

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completed. A discontinuance is completed when the plan is substantially completed or

abandoned, though payments from the buyer(s) to the seller may not yet be completed.

36. If an enterprise abandons or withdraws from a plan that was previously reported as
a discontinuing operation, that fact and its effect should be disclosed.

37. For the purpose of applying the preceding paragraph, disclosure of the effect
includes reversal of any prior impairment loss or provision that was recognised with
respect to the discontinuing operation.

Separate Disclosure for Each Discontinuing Operation

38. Any disclosures required by this Standard should be presented separately for each
discontinuing operation.

Presentation of the Required Disclosures

Face of Financial Statements or Notes

39. The disclosures required by paragraphs 27-37 may be presented either in the notes
to the financial statements or on the face of the financial statements except that the
disclosure of the amount of the pre-tax gain or loss recognised on the disposal of
assets or settlement of liabilities attributable to the discontinuing operation (paragraph
31(a)) should be shown on the face of the income statement.

40. The disclosures required by paragraphs 27(f) and 27(g) are encouraged to be
presented on the face of the income statement and cash flow statement, respectively.

Not an Extraordinary Item

41. A discontinuing operation should not be presented as an extraordinary item.

42. IAS 8 defines extraordinary items as "income or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the enterprise and
therefore are not expected to recur frequently or regularly." The two examples of
extraordinary items cited in IAS 8 are expropriations of assets and natural disasters,
both of which are types of events that are not within the control of the management of
the enterprise. As defined in this Standard, a discontinuing operation must be based on
a single plan by an enterprise's management to sell or otherwise dispose of a major
portion of the business.

Restricted Use of the Term 'Discontinuing Operation'

43. A restructuring, transaction, or event that does not meet the definition of a
discontinuing operation in this Standard should not be called a discontinuing
operation.

Illustrative Disclosures

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44. Appendix A provides examples of the presentation and disclosures required by this
Standard.

Restatement of Prior Periods

45. Comparative information for prior periods that is presented in financial statements
prepared after the initial disclosure event should be restated to segregate continuing
and discontinuing assets, liabilities, income, expenses, and cash flows in a manner
similar to that required by paragraphs 27-43.

46. Appendix B illustrates application of the preceding paragraph.

Disclosure in Interim Financial Reports

47. The notes to an interim financial report should describe any significant activities or
events since the end of the most recent annual reporting period relating to a
discontinuing operation and any significant changes in the amount or timing of cash
flows relating to the assets and liabilities to be disposed of or settled.

48. This principle is consistent with the approach in IAS 34, Interim Financial
Reporting, that the notes to an interim financial report are intended to explain
significant changes since the last annual reporting date.

Effective Date
49. This International Accounting Standard becomes operative for financial statements
covering periods beginning on or after 1 January 1999. Earlier application is
encouraged in financial statements for periods ending after this Standard is published.

50. This Standard supersedes paragraphs 19-22 of IAS 8, Net Profit or Loss for the
Period, Fundamental Errors and Changes in Accounting Policies.

Appendix A
Illustrative Disclosures
This appendix is illustrative only and does not form part of the standards. The purpose
of the appendix is to illustrate the application of the standards to assist in clarifying
their meaning.

Facts
1. X Company has three segments, A, B, and C. Segment C (the clothing division) is
deemed inconsistent with the long-term direction of the Company. Management has
decided, therefore, to dispose of Segment C. On 15 November 20x1 the board of
directors of X Company voted to approve the disposal, and an announcement was

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made. On that date, the carrying amount of Segment C's net assets was 90 (assets of
105 minus liabilities of 15). The net recoverable amount of the assets carried at 105
was determined to be 85, and the Company had concluded that a pre-tax impairment
loss of 20 should be recognised. At 31 December 20x1, the carrying amount of
Segment C's net assets was 70 (assets of 85 minus liabilities of 15). There was no
further impairment of assets between 15 November and 31 December when the
financial statements were prepared.

2. On 30 September 20x2, when the carrying amount of the net assets of Segment C
continued to be 70, X Company signed a legally binding contract to sell Segment C.
The sale is expected to be completed by 31 January 20x3. The recoverable amount of
the net assets is 60. Based on that amount, International Accounting Standards require
that an additional impairment loss of 10 must be recognised. In addition, prior to 31
January 20x3, the sale contract obliges X Company to terminate the employment of
certain employees of Segment C, incurring an expected termination cost of 30, to be
paid by 30 June 20x3. International Accounting Standards would require that a
liability and related expense be recognised in this amount. The company continued to
operate Segment C throughout 20x2. At 31 December 20x2, the carrying amount of
Segment C's net assets is now 45, consisting of assets of 80 minus liabilities of 35
(including the provision for expected termination cost of 30). The corporate income
tax rate is 30 per cent.

3. X Company prepares its financial statements annually as of 31 December.

Financial Statements for 20x1

Note to Financial Statements for 20x1

4. The following is a note to X Company's financial statements:

On 15 November 20x1, the board of directors announced a plan to dispose of Segment

C, our clothing division. The disposal is consistent with the Company's long-term
strategy to focus its activities in the areas of food and beverage manufacture and
distribution, and to divest unrelated activities. The Company is actively seeking a
buyer for Segment C and hopes to complete the sale by the end of 20x2. At 31
December 20x1, the carrying amount of the assets of Segment C was 85 and its
liabilities were 15. During 20x1, Segment C earned revenue of 50, incurred expenses
of 52, and incurred a pre-tax operating loss of 2, with a related tax benefit to the
enterprise of 1. During 20x1, Segment C's cash outflow from operating activities was
4, cash outflow from investing activities was 7, and cash inflow from financing
activities was 3.

Financial Statements for 20x2

Balance Sheet at 31 December 20x2

5. The carrying amounts of Segment C's total assets and total liabilities at 31

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December 20x2 must be disclosed.

Income Statement for 20x2

6. The income statement of the enterprise for the years 20x1 and 20x2 could be
presented as follows. Note that Year 20x1 has been restated to segregate the
discontinuing and continuing operations, as required by paragraph 45 of this Standard:

Continuing Discontinuing Enterprise as

Operations Operation a Whole
(Segments A & (Segment C)
B)
20x2 20x1 20x2 20x1 20x2 20x1
Revenue 100 90 40 50 140 140
Operating (60) (65) (30) (27) (90) (92)
expenses
Impairment loss - - (10) (20) (10) (20)
Provision for - - (30) - (30) -
employee
termination
Pre-tax profit 40 25 (30) 3 10 28
(loss) from
operating
activities
Interest expense ( 20) ( 10) ( 5) ( 5) ( 25) ( 15)
Profit (loss) 20 15 (35) (2) (15) 13
before tax
Income tax ( 6) ( 7) 10 1 4 ( 6)
expense
Profit (loss) from 14 8 (25) (1) (11) 7
ordinary activities
after taxes

7. One alternative is that the income statement could be presented as follows:

20x2 20x1
Continuing operations (Segments A & B):
Revenue 100 90

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Operating expenses (60) (65)

Pre-tax profit from operating activities 40 25
Interest expense (20) (10)
Profit before tax 20 15
Income tax expense ( 6) ( 7)
Profit after taxes 14 8
Discontinuing operation (Segment C):
Revenue 40 50
Operating expenses (30) (27)
Impairment loss (10) (20)
Provision for employee termination (30) -
Pre-tax profit (loss) from operating activities (30) 3
Interest expense (5) (5)
Profit (loss) before tax (35) (2)
Income tax expense 10 1
Profit (loss) after taxes (25) ( 1)
Total enterprise:
Profit (loss) from ordinary activities (11) 7

8. As an alternative to the foregoing income statement presentations, note disclosure is

allowed.

Cash Flow Statement for 20x2

9. Cash flows relating to continuing and discontinuing operations could be segregated
on the face of the cash flow statement for 20x2. Alternatively, note disclosure is
allowed. Presentation format options for the face of the cash flow statement include
ones similar to the two income statement formats shown in paragraphs 6 and 7, that is,
with continuing and discontinuing shown in separate columns or with continuing and
discontinuing separately subtotalled in a single column.

Note to Financial Statements for 20x2

10. The following is a note to X Company's financial statements:

On 15 November 20x1, the board of directors announced a plan to dispose of Segment

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C, our clothing division. On 30 September 20x2, the Company signed a contract to

sell Segment C to Z Corporation for 60. The Company decided to dispose of Segment
C because its operations are in areas apart from the core business areas (food and
beverage manufacture and distribution) that form the long-term direction of the
Company. Further, Segment C's rate of return has not been equal to that of the
Company's other two segments during the period. Segment C's assets were written
down by 10 (before income tax benefit of 3) to their net recoverable amount. The
Company recognised a provision for termination benefits of 30 (before income tax
benefit of 9) to be paid by 30 June 20x3 to certain employees of Segment C whose
jobs will be terminated as a result of the sale. The process of selling Segment C was
completed by 31 January 20x3. The Company recognised the related deferred income
tax asset of 4 because the management of the Company believes it is probable that the
continuing operations of Segments A and B will earn sufficient taxable profit to allow
the benefit of that deferred tax asset to be utilised.

Financial Statements for 20x3

11. The financial statements for 20x3, or the notes to the financial statements, would
segregate the continuing and discontinued operations in a manner similar to 20x2.
Data for years prior to 20x3 presented for comparative purposes would be similarly
segregated. The notes to the financial statements for 20x3 would include all of the
disclosures required by paragraph 35 of this Standard, including the fact that the
discontinuance was completed.

Gain on Disposal[1]
12. To change the facts of the example slightly, on 30 September 20x2 (when the
carrying amount of Segment C's net assets was 70) X Company signed a binding
contract to sell Segment C for 120, rather than 60. The contract continued to oblige the
Company for the employee termination costs of 30. In that case, an impairment loss
would not have been recognised in 20x2. The 30 pre-tax provision would be
recognised as a liability and an expense in 20x2. In 20x3, a pre-tax gain on disposal of
50 will be recognised when the transaction is completed and, in accordance with
paragraph 39, will be presented on the face of the income statement.

13. The following is an example of how the 20x3 income statement might appear:

20x3 20x2
Continuing operations (Segments A & B):
Revenue 150 100
Expenses (102) (60)
Pre-tax profit from operating activities 48 40
Interest (20) (20)

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Profit before tax 28 20

Income tax expense (10) ( 6)
Profit after taxes 18 14
Discontinuing operations (Segment C):
Revenue 3 40
Expenses before income taxes ( 5) (30)
Provision for employee termination - (30)
Pre-tax profit (loss) from operating activities (2) (20)
Interest - ( 5)
Profit (loss) before tax (2) (25)
Income tax expense - 7
Profit (loss) after taxes (2) (18)
Gain on discontinuance of Segment C 50
Tax thereon ( 15)
After-tax gain on discontinuance of Segment C 35 -
Total enterprise:
Profit from ordinary activities 51 (4)

Appendix B
Classification of Prior Period Operations
This appendix is illustrative only and does not form part of the standards. The purpose
of the appendix is to illustrate the application of the standards to assist in clarifying
their meaning.

Facts
1. paragraph 45 requires that comparative information for prior periods that is
presented in financial statements prepared after the initial disclosure event be restated
to segregate continuing and discontinuing assets, liabilities, income, expenses, and
cash flows in a manner similar to that required by paragraphs 27-43.

2. Consider the following set of changes to an enterprise:

(a) operations A, B, C, and D were all continuing in years 1 and 2;

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(b) in year 3, operation D is discontinued (approved for disposal and actually disposed
of);

(c) in year 4, operation B is discontinued (approved for disposal and actually disposed
of) and operation E is acquired; and

(d) in year 5 operation F is acquired.

3. The following table illustrates the classification of continuing and discontinuing

operations in the foregoing circumstances:

FINANCIAL STATEMENTS FOR YEAR 3 (Approved and

Published Early in Year 4)
Year 2 Comparatives Year 3
Continuing Discontinuing Continuing Discontinuing
A A
B B
C C
D D

FINANCIAL STATEMENTS FOR YEAR 4 (Approved and

Published Early in Year 5)
Year 3 Comparatives Year 4
Continuing Discontinuing Continuing Discontinuing
A A
B B
C C
D
E

FINANCIAL STATEMENTS FOR YEAR 5 (Approved and

Published Early in Year 6)
Year 4 Comparatives Year 5
Continuing Discontinuing Continuing Discontinuing
A A

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B
C C
E E
F

4. If the approval and announcement of the discontinuance of operation B had

occurred early in year 4, before the financial statements for year 3 had been authorised
for issue by the enterprise's board of directors, operation B would have been classified
as a discontinuing operation in the financial statements for year 3 and the year 2
comparatives, as follows:

FINANCIAL STATEMENTS FOR YEAR 3 (Approved in Year

4 After the Discontinuance of Operation B was Approved and
Announced)
Year 2 Comparatives Year 3
Continuing Discontinuing Continuing Discontinuing
A A
B B
C C
D D

5. If, for whatever reason, five-year comparative financial statements were prepared in
year 5, the classification of continuing and discontinuing operations would be as
follows:

FINANCIAL STATEMENTS FOR YEAR 5

Year 1 Year 2 Year 3 Year 4
Year 5
Comparatives Comparatives Comparatives Comparatives
Cont. Disc. Cont. Disc. Cont. Disc. Cont. Disc. Cont. Disc.
A A A A A
B B B B
C C C C C
D D D
E E
F

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[1]
This section of the example has been changed from that in the version of IAS 35
approved in 1998. As approved, this example was consistent with the proposed
requirements in E59, which would have permitted "reasonably expected future events"
to reduce the amount recognised as a provision. However, IAS 37, Provisions,
Contingent Liabilities and Contingent Assets, does not permit such treatment. This
example has been amended to conform to IAS 37.

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