Disposal of a Business Segment
APB Opinion No. 30
(a good portion of this Opinion has been superceded by FAS No. 144)
8 Discontinued Operations--operations of a segment that has been sold, abandoned, spun off, or otherwise disposed of or, although still  operating, is the subject of a formal plan for disposal.

  (1)   Results of continuing operations should be reported separately from discontinued operations;

  (2)  Any gain or loss from disposal of a segment of a business should reported in conjunction with the related results of discontinued operations and not as an extraordinary item.
Note: This format has been changed by FAS 144:
 Reporting Format:
Partial Income Statement

 Income from continuing operations before income taxes 

Provision for income taxes 

       Income (loss) from continuing operations 

 

 XX

       XX

$   XXX
 Discontinued operations (Note    ): 

 Income (loss) from operations of  discontinued 
     division X (less applicable income taxes of  $ XX ) 

Loss on disposal of division X,  including provision of $xxx for operating losses during phase-out period (less applicable income taxes of $xxx) 

    Income (Loss) from discontinued operations

Net Income (Loss) 
 

 

$ XXX
 
 
 

$ XXX

$ XXX

$ XXX 
===== 
 
 

Income taxes applicable to the results of discontinued operations and the gain or loss from disposal of the segment should be disclosed on the face of the income statement or in notes.

Revenues applicable to the discontinued operations should be disclosed in the related footnotes.
13 Segment of a Business--a component of an entity whose activities represent a separate major line of business or class of customer.

The assets, results of operations, and activities of the segment must be clearly distinguishable, physically and operationally and for financial reporting purposes, from the other assets, results of operations,  and activities of the entity.

 Financial statements of current and prior periods that include results of operations prior to the measurement date should disclose the results  of operations of the disposed segment, less applicable income taxes, as a separate component of income before extraordinary items.

The fact that the results of operations of the disposed segment cannot be separately identified strongly suggests that the transaction should not be classified as a disposal of a segment of the business.
14  Measurement Date--date on which the management having authority to  approve the action commits itself to a formal plan to dispose of a segment of the business, whether by sale or abandonment.

Plan of Disposal:

(a)  Identification of the major assets to be disposed of.

(b)  Expected method of disposal.

(c)   Period expected to be required for completion of the disposal.

(d) Active program to find a buyer if disposal is to be by sale.

(e) Estimated results of operations of the segment from measurement date to the disposal date

(f) Estimated proceeds or salvage to be realized by disposal.

Disposal Date--date of closing the sale or the date that operations cease if the disposal is by abandonment.
15  Determination of Gain or Loss on Disposal--

Loss--if loss is expected, then the estimated loss should be provided for at measurement date.

 Gain--recognized when realized, ordinarily at disposal date.

Determination of gain or loss should be made at the measurement date based on estimates at that date of the net realizable value of the segment after giving consideration (1) to any estimated costs and expenses directly associated with the disposal (2) and, if the plan of disposal is to be carried out over a period of time and contemplates continuing operations during that period, to any estimated income or  losses from operations.   If losses are expected to be incurred between measurement date and disposal date, the computation of the gain or loss on disposal should include  an estimate of such amounts. If income is expected, then include in computation, limited to the amount of any loss otherwise recognizable from the disposal; any remainder should be accounted for as income when realized.

 
In the usual circumstance, it would be expected that the plan of  disposal would be carried out within one year from measurement date.
16 Gain or loss from the disposal of a segment of a business should not include adjustments, costs, and expenses associated with normal business activities that should have been recognized on a going concern basis up to the measurement date. . .
17
 Gain or loss from the disposal of a segment of a business should include costs and expenses directly associated with the decision to dispose, including items such as severance pay, additional pension costs, employee reclocation expenses, and future rentals on long-term leases to the extent they are not offset by sub-lease rentals
18  Disclosure--

(a)  Identity of the segment.

(b) Disposal date.

(c) Manner of disposal.

(d)  Description of assets and liabilities of the segment at balance  sheet date.

(e) Income or loss from operations and any proceeds from disposal of  the segment during the period from the measurement date to the date of the balance sheet.
Adjustment of Amounts Reported in Prior Periods
25
Each adjustment in the current period of a loss on disposal of a business segment that was reported in a prior period should be separately disclosed as to year of origin, nature, and amount and classified separately in the current period in the same manner as the original item.

This Summary does not substitute for reading the appropriate FASB Codification sections!
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