This section provides guidance on the balance sheet and income statement presentation requirements when reporting discontinued operations. The statement of stockholders’ equity is not impacted by discontinued operations reporting. For reporting on the statement of cash flows, see FSP 6.
ASC 205-20-45-10 includes guidance on the presentation of discontinued operations in the statement of financial position.
Excerpt from ASC 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.
Even if a discontinued operation is disposed of by sale before the end of a reporting period and therefore there are no assets and liabilities held for sale to be presented at the current balance sheet date, the assets and liabilities of the discontinued operation must be presented separately in the prior period balance sheet. See FSP 8.6.2 for guidance on the balance sheet classification of assets held for sale that do not qualify for discontinued operations.
Reporting entities must disclose separately, either on the balance sheet or in the footnotes, the major classes of assets and liabilities of a discontinued operation for all periods presented. While the guidance does not specify how to determine which classes of assets and liabilities held for sale should be considered major, an example included in the guidance included cash, trade receivables, inventories, property, plant and equipment, trade payables, and short-term borrowings.
ASC 205-20 does not provide specific guidance on current and noncurrent classification of assets held for sale. However, assets and liabilities are usually further disaggregated and presented with separate line items for current and noncurrent assets, and current and noncurrent liabilities. To classify all assets and liabilities as current, reporting entities should consider whether the transaction is expected to be consummated within one year of the balance sheet date and the guidance in ASC 210-10-45-4 about whether the reporting entity expects to use the proceeds from the sale to reduce long-term borrowings. If the transaction is expected to be completed within one year and the proceeds are not expected to be used to pay down long-term borrowings, current classification is acceptable. However, even when current classification is acceptable for the current period balance sheet, balance sheets for prior periods should present current and noncurrent assets and liabilities.
If the major classes of assets and liabilities of a discontinued operation classified as held for sale are disclosed in the footnotes, reporting entities must reconcile the disclosure to the total assets and total liabilities of the disposal group classified as held for sale presented on the face of the balance sheet for all periods presented. If the disposal group includes assets and liabilities that are not part of the discontinued operation, the reconciliation should show them separately from the assets and liabilities of the discontinued operation.
In a spin-off transaction that qualifies as a discontinued operation, ASC 205-20-45-10 requires retrospectively separating the assets and liabilities of the entity being spun off (similar to if the entity had been held for sale) in the prior period balance sheets. However, because the assets disposed of through a spin-off transaction are required to remain classified as held and used until the spin-off has occurred, reclassification of the prior year balance sheet would not be appropriate until the spin-off is completed.
A reporting entity with a component that meets the conditions for discontinued operations should report the results of operations of the component, less applicable income taxes (benefit), as a separate component of income before cumulative effect of change in accounting principles (if applicable). A reporting entity should separately present the gain or loss recognized on the disposal (and/or any loss recognized upon and during classification as held for sale) of the discontinued operation either on the face of the income statement or in the footnotes. Figure FSP 27-1 illustrates an income statement when a reporting entity reports a discontinued operation: