Advanced Accounting · AS 24 Discontinuing Operations

Discontinuing Operations under AS 24: Meaning and Definitions

Updated 4 October 2026 · Fact-checked

AS 24 sets out how an enterprise reports a discontinuing operation so users can judge its future cash flows and profits. A discontinuing operation is a relatively large component, such as a business or geographical segment, that the enterprise disposes of under a single plan, wholly or piecemeal, or abandons, and which is clearly distinguishable operationally and financially.

Understand Discontinuing Operations: Meaning and Definitions

AS 24 deals with presentation and disclosure, not with recognition or measurement. It does not tell you how to value assets of the operation being closed. Other standards, such as AS 28 on impairment and AS 29 on provisions, do that. AS 24 tells you what to show separately so that readers can separate the results of the part being closed from the part continuing.

Why does this matter? Suppose a company earns ₹10 crore, but ₹4 crore comes from a division it is about to shut. A reader who projects ₹10 crore for next year will be misled. Separate disclosure fixes this.

An operation is a discontinuing operation only if all three conditions hold. First, the enterprise, pursuant to a single plan, is either disposing of it substantially in its entirety (for example by sale, demerger or spin-off to shareholders), or disposing of it piecemeal (selling off its assets and settling its liabilities separately), or terminating it through abandonment. Second, it represents a separate major line of business or geographical area of operations. Third, it can be distinguished operationally and financially from the rest of the enterprise.

The third condition is the idea of separability, which is similar to how a business or geographical segment is identified under AS 17. The assets, liabilities, revenues, expenses and cash flows of the component must be separately identifiable. If you cannot cleanly carve it out, it is not a discontinuing operation.

The initial disclosure event is the earlier of two things: the enterprise enters into a binding sale agreement for substantially all the assets of the operation, or its board of directors (or similar body) approves a detailed, formal plan for discontinuance and announces it. From this date, the standard's disclosures begin. Ordinary events such as a gradual run-down or a mere change in product mix do not qualify. Note also that AS 24 applies to all enterprises that are required to follow it, so check applicability under the Accounting Standards applicability rules before you apply it.

Key rules to remember

Definition of discontinuing operation: Discontinuing operation = component that (a) pursuant to a single plan is disposed of substantially in its entirety or piecemeal, or is abandoned, (b) is a separate major line of business or geographical area, and (c) is distinguishable operationally and financially; All three conditions must be met. Missing any one means it is not a discontinuing operation.
Initial disclosure event: Initial disclosure event = earlier of (i) binding sale agreement for substantially all the assets, or (ii) board-approved and announced detailed formal plan; Disclosure under AS 24 starts from this date, which may fall in an earlier period than the actual disposal.
Scope of AS 24: AS 24 = presentation and disclosure only; no recognition or measurement rules; Use AS 28, AS 29 and other standards for measuring impairment, provisions and gains or losses.
Ways of discontinuance: Under a single plan: disposal substantially in its entirety (sale in a single transaction, demerger or spin-off), piecemeal disposal, or abandonment; Abandonment means the operation is terminated, not merely put on hold.
Separability test: Assets, liabilities, revenue, expenses and cash flows of the component are separately identifiable; Ties to the business or geographical segment identification used in AS 17.

How to solve Discontinuing Operations: Meaning and Definitions questions

Use this method for any question that asks whether something is a discontinuing operation or when disclosure starts.

1Read the facts and note what is happening to the component: sale, demerger, piecemeal disposal, abandonment, or only a slowdown.
2Test condition one: under a single plan, is the enterprise disposing of it substantially in its entirety or piecemeal, or abandoning it? Reduction in volume or temporary closure fails.
3Test condition two: is it a separate major line of business or geographical area? Closing one product within a line usually fails.
4Test condition three: can its assets, liabilities, revenues, expenses and cash flows be separately identified operationally and financially?
5Identify the initial disclosure event: the earlier of the binding sale agreement or the board's approved and announced detailed formal plan.
6State the conclusion in one line, and mention that AS 24 requires only presentation and disclosure, not measurement.
7If asked about the period, say disclosure begins in the financial statements covering the period in which the initial disclosure event occurs.

Quickest way: Three-test and date check

When to use it: For MCQs and short theory parts where you have about a minute.

Ask three quick questions: disposed or abandoned under a single plan? major line or geography? separable? Any one 'no' means not a discontinuing operation.
For date questions, pick the earlier of the binding agreement and the board plan that is announced or communicated.
In MCQs, eliminate options that mention measurement or valuation under AS 24, since it has none.
In written answers, use the format: provision (condition), facts (map each fact to a condition), conclusion. This earns step marks.

Common mistakes in Discontinuing Operations: Meaning and Definitions

Treating any closure of a product or small unit as a discontinuing operation.
Students focus on the word 'discontinue' and ignore the 'major line of business or geographical area' condition.
Fix: Always test all three conditions and check that the component is major and separable.
Taking the actual date of sale as the initial disclosure event.
It feels natural that the event is the disposal itself.
Fix: Use the earlier of the binding sale agreement or the board's approved and announced detailed plan.
Saying a board plan alone is enough, even when not announced or not detailed.
Students remember 'board approval' but forget the plan must be detailed, formal and announced.
Fix: Check that the plan is detailed and formal, and that the enterprise has announced it to those affected.
Believing AS 24 tells you how to measure the loss on disposal.
The word 'accounting standard' suggests full accounting treatment.
Fix: Remember AS 24 covers presentation and disclosure only. Measurement comes from other standards such as AS 28 and AS 29.
Ignoring separability and treating a closed part of an integrated operation as a discontinuing operation.
Students look only at the business decision, not at whether cash flows and assets can be identified separately.
Fix: Ask whether the component's figures can be cleanly carved out from the rest of the enterprise.

Worked examples

Example 1

Alpha Ltd makes textiles and also runs a separate chemicals division with its own plant, staff, accounts and customers. On 15 February the board approved a detailed formal plan to close the chemicals division, and announced it to employees and customers the next day. On 20 March the company signed a binding agreement to sell the plant. The year ends on 31 March. Is the chemicals division a discontinuing operation, and what is the initial disclosure event?

Show the solution

Condition one: under a single plan, the division is being closed and its assets sold, so it is being disposed of or abandoned.
Condition two: chemicals is a separate major line of business compared with textiles.
Condition three: it has its own plant, staff, accounts and customers, so it is distinguishable operationally and financially.
Initial disclosure event: the board approved a detailed formal plan on 15 February and announced it on 16 February. The binding sale agreement came later, on 20 March.
The earlier of the two is the announced board plan, so the event occurs on 16 February, when the plan is approved and announced.

Answer: Yes, the chemicals division is a discontinuing operation. The initial disclosure event is 16 February, when the approved detailed plan was announced, because it is earlier than the binding agreement of 20 March. Disclosures apply to the year ending 31 March.

Example 2

Beta Ltd sells 12 products. The board decides to stop making one slow-moving product, which forms about 2% of turnover and shares plant, staff and sales network with the other products. Is this a discontinuing operation under AS 24? Give reasons.

Show the solution

Condition one: the product line is being stopped, so abandonment is present.
Condition two: one product among twelve with about 2% of turnover is not a separate major line of business or geographical area.
Condition three: it shares plant, staff and sales network, so its assets, expenses and cash flows cannot be separately identified operationally and financially.
Since conditions two and three fail, the definition is not met.

Answer: It is not a discontinuing operation under AS 24. It is not a separate major line of business or geographical area, and it is not distinguishable operationally and financially. Beta Ltd should account for it as an ordinary change in product mix, not under AS 24.

Exam tips

In theory questions, write the three conditions as a numbered list and apply each fact to them. This is how step marks are awarded.
For a date question, state both candidate events with dates, then pick the earlier. Examiners look for the comparison.
Remember AS 24 is a disclosure standard. If a question asks for the measurement of loss, point to other standards.
In MCQs, watch for options that sound right but drop one of the three conditions, such as ignoring separability.

Practice questions from AS 24 Discontinuing Operations

Discontinuing Operations: Meaning and Definitions: frequently asked questions

What is a discontinuing operation as per AS 24?

It is a relatively large component of an enterprise, such as a major line of business or geographical area, that the enterprise disposes of under a single plan, either substantially in its entirety or piecemeal, or abandons. It must also be distinguishable operationally and financially from the rest of the enterprise.

What is the initial disclosure event in AS 24?

It is the earlier of two events. One is a binding sale agreement for substantially all the assets of the operation. The other is the board's approval and announcement of a detailed, formal plan for discontinuance. Disclosure starts from the period in which it occurs.

Does AS 24 tell me how to measure the loss on a discontinuing operation?

No. AS 24 deals only with presentation and disclosure. Measurement of impairment, provisions and gains or losses follows other standards such as AS 28 and AS 29.

Is AS 24 applicable to every company?

It applies to enterprises that are required to follow the Accounting Standards, subject to the applicability rules and the exemptions given to lower-level entities. Check the classification of the entity before applying it in an answer.