Advanced Accounting · AS 24 Discontinuing Operations

Recognition and Initial Disclosure Event under AS 24 Discontinuing Operations

Updated 5 October 2026 · Fact-checked

Under AS 24, a discontinuing operation is a separable component of an enterprise that is being disposed of or terminated. Disclosure starts on the initial disclosure event: the earlier of the enterprise entering a binding sale agreement, or the board approving a detailed formal plan and announcing it to those affected or starting to implement it.

Understand Recognition and Initial Disclosure Event

AS 24 tells readers of financial statements which part of a business is being wound down, so they can predict future cash flows and profits. Results of a continuing business and a dying business should not be mixed.

A discontinuing operation is a component that the enterprise, pursuant to a single plan, is disposing of substantially in its entirety, such as by selling it in a single transaction or by demerger or spin-off of ownership to shareholders, or piecemeal (by selling off the assets and settling the liabilities individually), or terminating through abandonment. It represents a separate major line of business or geographical area of operations. Its assets, liabilities, revenue, expenses and cash flows can be distinguished physically, operationally and for financial reporting purposes.

Timing matters. The initial disclosure event is the earlier of two things: (a) the enterprise enters into a binding sale agreement for substantially all the assets attributable to the discontinuing operation, or (b) the board of directors or a similar governing body has approved a detailed, formal plan and has either announced the plan's main features to those affected by it (for example employees, customers and creditors) or commenced implementing the plan. Approval alone is not enough. A plan that is only discussed, or approved but neither announced to those affected nor started, does not trigger disclosure.

The details a formal plan might contain, such as the major assets involved, the expected disposal date, the principal locations affected and employee termination details, are only illustrations of what makes a plan detailed. They are not separate AS 24 conditions. Employee termination details in particular belong more to restructuring provisions under AS 29.

A sale agreement must be binding. A letter of intent or a non-binding offer does not count. Abandonment means the enterprise stops using the operation and its assets (for example, closing a plant) without selling it as a going concern. It still qualifies if it is part of a single plan covering a separate major line of business or geographical area.

A restructuring (for example, a product-line closure or a reorganisation) may, but need not, qualify as a discontinuing operation. It qualifies only if it meets the definition of a discontinuing operation: a single plan, and a separate major line of business or geographical area that is distinguishable physically, operationally and for reporting. The initial disclosure event then fixes when disclosure begins. It is a timing trigger, not a test of whether the definition is met. A mere change in product mix does not qualify. A gradual or evolutionary phasing out of a product line or class of service, or a routine discontinuance of a product line, is not a discontinuing operation. Sale of a component is covered if it forms a separate major line of business or geographical area.

Key rules to remember

Initial disclosure event: Earlier of (binding sale agreement) or (board-approved detailed formal plan AND either announcement of main features to those affected or commencement of implementation); Disclosure obligations under AS 24 begin at this date, in the period in which it occurs.
Definition test: component: Single plan + substantially entire disposal or abandonment + separate major line of business or geographical area + assets, liabilities, revenue, expenses and cash flows distinguishable physically, operationally and for financial reporting; All conditions must be met. Failing any one means it is not a discontinuing operation.
Binding sale agreement: Binding sale agreement to transfer substantially all assets of the component; Treat it as an agreement that commits the parties. A letter of intent, MOU or non-binding offer does not qualify.
Detailed formal plan: illustrative content: Detailed formal plan approved by board, and either announced to those affected or implementation commenced; Illustrative only, not an AS 24 requirement: a detailed formal plan might identify the major assets to be disposed of, the expected disposal date, the principal locations affected and employee termination details.

How to solve Recognition and Initial Disclosure Event questions

Use this order for any recognition question on AS 24.

1Identify the component. Is it a separate major line of business or geographical area, distinguishable operationally and for reporting?
2Check that it is disposed of or terminated under a single co-ordinated plan, substantially in its entirety.
3List the events with dates: board meetings, announcements, start of implementation, agreements, closure dates.
4For each event ask: is it a binding sale agreement, or a board-approved detailed formal plan that has also been announced to those affected or started?
5Pick the earlier qualifying date. That is the initial disclosure event.
6Place it in the right financial year and state that disclosures start in that year's financial statements.
7Write the conclusion with reasons, citing the facts that satisfy or fail each test.

Quickest way: Three-gate check

When to use it: For MCQs and short written parts where dates and events are given.

Gate 1: Is it a major line of business or geographical area? If not, stop: not discontinuing.
Gate 2: Is there a binding sale agreement, or is there board approval of a detailed formal plan plus announcement to those affected or start of implementation?
Gate 3: Choose the earlier date of the qualifying events.
In MCQs, eliminate options that treat a letter of intent, a board plan that is neither announced nor started, or a routine product-line closure as the trigger.
In written answers, use three lines: Provision, Facts, Conclusion. Mention the date and the year of disclosure for step marks.

Common mistakes in Recognition and Initial Disclosure Event

Treating board approval alone as the initial disclosure event.
Students remember 'board approval' and ignore the words 'detailed formal plan' and the need for announcement or start of implementation.
Fix: Check both: the plan is detailed, formal and approved by the board, and its main features have been announced to those affected or implementation has begun. Otherwise wait for a binding sale agreement, or for a board-approved detailed plan that has been announced or has begun implementation.
Treating a letter of intent or MOU as a binding sale agreement.
Questions use words like 'agreed' loosely.
Fix: Look for a legally enforceable agreement to transfer substantially all the assets of the operation. If the question says non-binding, or subject to conditions outside the seller's control, do not treat it as the trigger.
Treating every closure or product-line discontinuance as a discontinuing operation.
Students ignore the 'major line of business or geographical area' test.
Fix: Test size and separability. A minor product discontinued as routine is not covered.
Believing abandonment is outside AS 24.
Students link discontinuance only with sale.
Fix: Abandonment or termination through closure counts if it is under a single plan and meets the definition.
Taking the later of the two dates when both events occur.
Confusion about which event to choose.
Fix: The initial disclosure event is always the earlier qualifying event.

Worked examples

Example 1

A Ltd has two divisions: textiles (a separate major line of business) and packaging. On 10 January 2027 its board approved a detailed formal plan to sell the textile division. No implementation began at that time. The plan's main features were announced to employees and the press on 25 January 2027. On 15 March 2027 A Ltd signed a binding sale agreement for the division's assets. The financial year ends on 31 March 2027. Identify the initial disclosure event and the year of first disclosure.

Show the solution

Component: textiles is a separate major line of business, distinguishable, and the sale is of substantially the whole division under a single plan.
Event 1: board approved the detailed formal plan on 10 January 2027, but the main features were announced to those affected only on 25 January 2027, and implementation had not begun. The plan qualifies from 25 January 2027, when both approval and announcement are met.
Event 2: binding sale agreement on 15 March 2027.
The earlier qualifying date is 25 January 2027.
This date falls in the year ended 31 March 2027.

Answer: The initial disclosure event is 25 January 2027, when the board-approved detailed formal plan was announced to those affected. AS 24 disclosures begin in the financial statements for the year ended 31 March 2027.

Example 2

B Ltd's board discussed on 5 February 2027 closing its Gujarat plant, which is a minor part of its operations producing 4% of output. The board approved a detailed formal plan and announced it to those affected on 20 February 2027. Is this a discontinuing operation under AS 24? Also state what would change if the plant were a separate major line of business.

Show the solution

Check the definition: the closure must relate to a separate major line of business or geographical area.
The plant is small, and the facts do not show a separate major line of business or geographical area. AS 24 sets no percentage threshold, so size alone does not decide the matter. The definition is not met on these facts.
Board approval and announcement fix only the timing of disclosure. The plant must first meet the definition (a separate major line of business or geographical area), and here it does not.
If the plant were a separate major line of business, abandonment under a single plan would meet the definition.
Then the initial disclosure event would be 20 February 2027, the date of board approval and announcement of the detailed formal plan, as no earlier binding sale agreement or start of implementation exists. The 5 February discussion is not an event.

Answer: On these facts, it is not a discontinuing operation because nothing shows a separate major line of business or geographical area. If it were, the initial disclosure event would be 20 February 2027.

Exam tips

Always write the date of the initial disclosure event and the financial year it falls in. Marks are often given for the date.
Underline words such as 'non-binding', 'letter of intent', 'approved but not announced' in the question. They usually signal a trap, unless implementation has already started.
When a question mixes sale and closure, state that both sale and abandonment can qualify.
For MCQs, if a scenario fails the major line or geographical area test, pick the option saying it is not a discontinuing operation.
Write answers as provision, facts, conclusion in three short parts.

Practice questions from AS 24 Discontinuing Operations

Recognition and Initial Disclosure Event in other exams

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

CA FinalRecognition and Measurement at Initial Recognition

Recognition and Initial Disclosure Event: frequently asked questions

What is the initial disclosure event in AS 24?

It is the earlier of two events: the enterprise enters a binding sale agreement for substantially all the assets of the operation, or the board approves a detailed formal plan and either announces its main features to those affected or starts implementing it. From that event, AS 24 disclosures begin.

Is abandonment a discontinuing operation under AS 24?

Yes, if it is carried out under a single plan and the component is a separate major line of business or geographical area. Abandonment means the enterprise stops using the operation without selling it. Routine closure of a minor product line does not qualify.

Is board approval enough to trigger AS 24?

No. The plan must be detailed and formal. The board must also have either announced its main features to those affected or started implementing it. If a binding sale agreement is signed earlier, that date is the initial disclosure event instead.

Does a letter of intent count as a binding sale agreement?

No. A binding sale agreement is a legally enforceable agreement to transfer substantially all the assets of the operation. A letter of intent, MOU or non-binding offer does not trigger disclosure by itself.