CA Intermediate · Advanced Accounting

AS 24 Discontinuing Operations: CA Intermediate Chapter Guide

AS 24 tells you how to report a component of a business that is being sold, demerged or abandoned. First test whether it is a separate major line of business or geographical area. Then find the initial disclosure event. From that period, disclose its results, assets, liabilities and cash flows, and restate comparatives.

What this chapter covers

AS 24 is about one question: when part of a business is being shut down or sold, how do you show users of the financial statements what is going away? Without separate reporting, a company's past profits look like a guide to future profits, even though a big part of the business will soon disappear. The standard fixes this by asking you to separate the discontinuing operation from the continuing one.

The chapter has a clear sequence. First you decide whether something is a discontinuing operation at all. It must be a component that the enterprise is disposing of under a single plan, by disposal substantially in its entirety, piecemeal sale, or abandonment. It must also represent a separate major line of business or geographical area, and be distinguishable operationally and for financial reporting. Next you fix the initial disclosure event, which is the trigger date. Then you measure and present, and finally you disclose and restate comparatives.

AS 24 does not prescribe separate recognition and measurement principles. It uses those of other standards, such as AS 28 (impairment) and AS 29 (provisions). AS 4 is relevant only for events after the balance sheet date, for example a sale agreement or plan that comes after that date. AS 24 does itself prescribe the initial disclosure event, presentation and disclosure. It also links to AS 17 (segment reporting) because the disclosure names the segment in which the operation is reported, and to AS 3 (cash flow statement) because you disclose net operating, investing and financing cash flows. Learn those links and the chapter is small, mostly theory, and very scoring.

This chapter is short, mostly conceptual and easy to finish in a few sittings, so the effort-to-marks ratio is good. It suits both MCQs (does this situation qualify, which date is the initial disclosure event, which item is disclosed) and descriptive answers (list the disclosures, explain the presentation, or apply the definition to a case). Since the paper has no negative marking, a sound grasp of the definition lets you attempt every MCQ with confidence. In written answers, a proper conclusion backed by the conditions of the definition earns step marks. The same facts also help you in other chapters that use AS 17, AS 28 and AS 29.

AS 24 Discontinuing Operations: topics in the order to study them

1Discontinuing Operations: Meaning and DefinitionsEverything else depends on knowing what qualifies as a discontinuing operation and what does not, so start here.
2Recognition and Initial Disclosure EventOnce you know what qualifies, you need the trigger date, because disclosures begin in the period in which it falls.
3Measurement and Presentation in Financial StatementsAfter the trigger, you must know which standards decide measurement and how the results are shown, so this follows recognition.
4Disclosures and Restatement of Prior PeriodsThis is the list-heavy part, best learnt last, when you already understand the terms it uses.

How to prepare AS 24 Discontinuing Operations

This is a compact, theory-led chapter. Aim to understand the logic once, then practise applying it to short situations until your answers follow a fixed pattern.

Learn the definition as three parts: a single plan with a disposal route (disposal substantially in its entirety, piecemeal sale or abandonment), a separate major line of business or geographical area, and distinguishable operationally and for financial reporting. Say them aloud until you can recite them without looking.
Make two short lists: what qualifies and what does not. For example, a gradual phasing out of a product line, shifting products or services to another location, selling a subsidiary whose activities are similar to the parent's, or closing a facility to achieve productivity improvements or cost savings are not by themselves discontinuing operations.
Memorise the two routes to the initial disclosure event: a binding sale agreement for substantially all the assets of the operation, or the board approving a detailed, formal plan and announcing it. Remember that the earlier of the two is the trigger.
Learn what a detailed, formal plan covers: the major assets to be disposed of, the expected method and timing of disposal, the principal locations affected, the employees to be compensated, expected capital expenditure and the expected completion date.
Prepare the disclosure list in groups: description and segment, date and nature of the trigger, expected completion, carrying amounts of assets and liabilities, revenue and expenses, pre-tax profit or loss and tax, gain or loss on disposal, and net cash flows. Then learn how comparatives are restated.
Practise small scenarios in two formats: a four-line MCQ-style check of whether the definition and trigger are met, and a written answer that states the provision, applies the facts and gives a conclusion. For numerical questions, show the continuing and discontinuing columns separately.
On revision day, read only your lists and one worked scenario per topic. Do not reread the full text.

Common mistakes in AS 24 Discontinuing Operations

Calling any closure or sale a discontinuing operation.
Fix: Check all parts: single plan, disposal route, separate major line of business or geographical area, and distinguishable operations. If one part fails, the answer is no.
Taking the date of the board meeting as the initial disclosure event.
Fix: The board must approve a detailed, formal plan and announce it. Pick the earlier of that point and a binding sale agreement for substantially all the assets.
Writing new measurement rules for AS 24.
Fix: State that AS 24 does not prescribe separate recognition and measurement principles but uses those of other standards, such as AS 28 or AS 29, as the situation needs. Add that AS 4 matters only for events after the balance sheet date, and that AS 24 itself prescribes the initial disclosure event, presentation and disclosure.
Giving an incomplete disclosure list in written answers.
Fix: Learn it in groups: identification, timing, balance sheet amounts, profit or loss and tax, disposal gain or loss, cash flows. Write it in that order.
Forgetting to restate comparatives and to continue disclosures in later periods.
Fix: Add one line in every answer: prior period figures are restated to separate continuing and discontinuing operations, and disclosures continue until completion.
Mixing up continuing and discontinuing figures in numericals.
Fix: Draw two columns before you start and allocate each item to a column. Show pre-tax profit, tax and disposal gain or loss separately, then total.

Last-day revision: AS 24 Discontinuing Operations

A discontinuing operation is a component that is being disposed of under a single plan and is a separate major line of business or geographical area.
The component must be distinguishable operationally and for financial reporting purposes.
Disposal routes: disposal substantially in its entirety (for example a single sale, or a demerger or spin-off to shareholders), piecemeal sale, or abandonment.
Gradual phasing out, shifting products or services to another location, selling a subsidiary whose activities are similar to the parent's, or closing a facility to achieve productivity improvements or cost savings is not by itself a discontinuing operation.
The initial disclosure event is the earlier of a binding sale agreement for substantially all the assets, or board approval of a detailed formal plan plus its announcement.
A plan that is only approved but not announced does not trigger AS 24 on its own.
AS 24 does not prescribe separate recognition and measurement principles; it uses those of other standards such as AS 28 (impairment) and AS 29 (provisions). AS 4 is relevant only for events after the balance sheet date. AS 24 itself prescribes the initial disclosure event, presentation and disclosure.
Disclosure starts with the financial statements for the period in which the initial disclosure event occurs.
Disclose carrying amounts of assets to be disposed of and liabilities to be settled at the balance sheet date.
Disclose revenue, expenses, pre-tax profit or loss, related tax, and net operating, investing and financing cash flows of the operation.
Disclose the pre-tax gain or loss on disposal of assets or settlement of liabilities, with the related tax.
Restate comparatives presented in the statements for the period of the initial disclosure event and in later periods, to separate continuing and discontinuing operations, and keep disclosing until the discontinuance is complete.

AS 24 Discontinuing Operations practice questions

AS 24 Discontinuing Operations in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

AS 24 Discontinuing Operations: frequently asked questions

Is AS 24 Discontinuing Operations in the CA Intermediate syllabus?

Yes. It is a chapter in Paper 1, Advanced Accounting. It is mostly theory, so expect questions that test definitions, the initial disclosure event and the disclosure list, and occasionally a short numerical.

What is the initial disclosure event under AS 24?

It is the earlier of two things. One is a binding sale agreement for substantially all the assets of the discontinuing operation. The other is the board, or a similar governing body, approving a detailed formal plan and announcing it. Disclosures begin with the financial statements for the period in which this happens.

Does AS 24 apply to every plant closure or product phase-out?

No. The component must be disposed of under a single plan and represent a separate major line of business or geographical area that can be distinguished operationally and for financial reporting. A gradual phase-out or a shift of production does not qualify merely because it happens.

How should I study AS 24 for MCQs and written answers?

For MCQs, learn the definition conditions and the trigger rule, since most questions test them directly. For written answers, use a fixed pattern: state the rule, apply the facts, and conclude. For disclosures, write the list in the same grouped order every time.