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Discontinued Operations
(SFAS No. 144)


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Financial Statements Overview
 
SFAS No. 144 (Discontinued Operations)

Statement of Financial Accounting Standards (SFAS) No. 144
        a. 
Accounting for the Impairment or Disposal of Long-Lived Assets
        b.  Issued in August 2001
        c.  SFAS No. 144 deletes APB Opinion No. 30, Para. 13-18
                 (Accounting for the Disposal of a Segment of a Business)
        d.  SFAS No. 144 supersedes SFAS No. 121
                 (Accounting for the Impairment of Long-Lived Assets
                  and for Long-Lived Assets to Be Disposed Of)

The results of operations
           of a component of an entity that either
                 a.  has been disposed of or
                 b.  is classified as held for sale

           --> reported in discontinued operations
                 if both of the conditions are met.


Conditions
           a.  The operations and cash flows of the component
                --> have been (or will be) eliminated from the ongoing operations.

           b.  The entity will not have any significant continuing involvement
                      in the operations of the component after the disposal.

The results of discontinued operations, less applicable income taxes (benefit),
                --> shall be reported as
                      a separate component of
                      income before extraordinary items
.

SFAS No. 144 (Impairment of Long-Lived Assets)

Statement of Financial Accounting Standards (SFAS) No. 144
        a. 
Accounting for the Impairment or Disposal of Long-Lived Assets
        b.  Issued in August 2001
        c.  SFAS No. 144 deletes APB Opinion No. 30, Para. 13-18
                 (Accounting for the Disposal of a Segment of a Business)
        d.  SFAS No. 144 supersedes SFAS No. 121
                 (Accounting for the Impairment of Long-Lived Assets
                  and for Long-Lived Assets to Be Disposed Of)

SFAS No. 144 retains the requirements of SFAS No. 121

        a.  to recognize an impairment loss
             --> only if the carrying amount is not recoverable
                  (from its undiscounted cash flows)

        b.  to measure an impairment loss
             --> as difference between
                   the carrying amount and fair value of the asset.

SFAS No. 144 removes goodwill from its scope
             --> SFAS No. 121 requirement
                   to allocate goodwill to long-lived assets (to be tested for impairment)
                   was eliminated.

SFAS No. 144 Does NOT Apply to
        a.  Goodwill
        b.  Intangible assets not being amortized
        c.  Servicing assets
        d.  Financial instruments
             (including investments in equity securities accounted for
              under the cost or equity method)
        e.  Deferred policy acquisition costs
        f.   Deferred tax assets
        g.   Unproved oil and gas properties
              (that are being accounted for using
                the successful-efforts method of accounting)
        h.  Assets whose accounting is prescribed by
                --> SFAS No. 50, 53, 63, 86, 90

Impairment is the condition
             --> that exists when
                   carrying amount exceeds fair value

Impairment loss is recognized only if
             --> the carrying amount is not recoverable
                   and
             --> the carrying amount exceeds fair value

Carrying amount is not recoverable if
             --> carrying amount exceeds
                   the sum of the undiscounted cash flows
                   (from the use and eventual disposition of the asset)

Impairment loss is measured as
             --> the amount by which carrying amount exceeds fair value
             = carrying amount of the asset - fair value of the asset

Best evidence of fair value of an asset
             --> quoted market prices in active markets

After an impairment is recognized,
             --> adjusted carrying amount of the asset
                   is accounted for as its new cost.
             --> for depreciable asset,
                   new cost basis is depreciated over the remaining useful life of that asset.

Restoration of previously recognized impairment losses
             --> is prohibited.

An impairment loss (for assets to be held and used)
             --> is reported as a component of
                   income from continuing operations before income taxes.

APB Opinion No. 30 (Extraordinary Items)


Accounting Principles Board (APB) Opinion No. 30
        a.  Reporting the Results of Operations
             -- Reporting the Effects of Disposal of Segment of a Business,
             and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
        b.  Issued in June 1973

 Accounting for the Disposal of a Segment of a Business
                 (APB Opinion No. 30, Para. 13-18)

           --> deleted by SFAS No. 144, August 2001

Extraordinary Items
           are events and transactions that are distinguished
           (a)  by their unusual nature
                 and
           (b)  by the infrequency of their occurrence.
                 [Para. 20]

 
 Unusual Nature
           --> high degree of abnormality
           --> clearly unrelated (or only incidentally related)
           --> to the ordinary and typical activities of the enterprise

 Infrequency of Occurrence
           --> not reasonably expected to recur
           --> in the foreseeable future

 Examples of gains and losses NOT reported as extraordinary items
           a.  Write-down or write off of
                --> receivables, inventories, equipment leased to others, or intangible assets
           b.  Gains or losses from
                --> exchange or translation of foreign currencies
           c.  Gains or losses on
                --> disposal of a component of an entity
           b.  Gains or losses from
                --> sale or abandonment of property, plant, or equipment
                      used in the business
           b.  Effects of
                --> a strike

           b.  Adjustment of accruals
                --> on long-term contracts

 Income Statement Presentation
           --> extraordinary items should be reported separately on the income statement
                 (as prescribed APB Opinion No. 9)

 Income Taxes applicable to extraordinary items
           --> should be disclosed on the face of the income statement;
           --> alternatively, disclosure in the related notes is acceptable.

 
APB Opinion No. 9


Accounting Principles Board (APB) Opinion No. 9
        a.  Reporting the Results of Operations
        b.  Issued in December 1966

 Extraordinary Items
           --> should be segregated from the results of ordinary operations
           --> and shown separately in the income statement,
                 (with disclosure of the nature and amounts thereof)



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