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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Mehra Foods Ltd has a binding agreement to sell its packaged snacks division. At the balance sheet date, the carrying amount of the division's net assets is ₹7,50,00,000 and the net selling price agreed in the contract is ₹6,90,00,000. The remaining question is how AS 24 requires the enterprise to treat the shortfall in the financial statements. Which is correct?

Mehra Foods should recognise the ₹60,00,000 shortfall as an impairment loss in profit and loss under AS 28 and disclose it for the discontinuing operation. The carrying amount of ₹7.5 crore exceeds the agreed net selling price of ₹6.9 crore, and AS 24 does not allow deferral or adjustment against reserves.

  1. AIgnore the shortfall until the sale is completed in the next year
  2. BDisclose the shortfall of ₹60,00,000 only as a contingent liability
  3. CRecognise an impairment-type loss of ₹60,00,000 in line with AS 28 and disclose the amount of the loss for the discontinuing operationCorrect
  4. DAdjust the shortfall against the general reserve without routing it through profit and loss

Explanation

AS 24 requires the enterprise to apply AS 28 (Impairment of Assets) to the assets of the discontinuing operation and to AS 29 for provisions. The carrying amount exceeds the net selling price by 7,50,00,000 minus 6,90,00,000 = ₹60,00,000, so a loss is recognised in profit and loss and disclosed. Deferring it or taking it to reserves is not permitted.

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