Skip to content

CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Mehta Auto Components Ltd has two segments. Its Pune plant, which makes gaskets, is being closed under a board-approved plan. Mehta is not selling this plant as a separate business, and instead is gradually shutting it down. Which statement about classification under AS 24 is correct?

The Pune plant can qualify as a discontinuing operation even without a sale, because AS 24 also covers piecemeal disposal and abandonment. It must still be a separate major line of business or geographical area and be distinguishable operationally and for financial reporting.

  1. AIt cannot be a discontinuing operation because no sale is involved
  2. BIt qualifies only if the plant is sold to a related party
  3. CIt can qualify as a discontinuing operation through abandonment or liquidation, provided the other AS 24 criteria such as distinguishability and being a separate major line are metCorrect
  4. DIt qualifies automatically as soon as production reduces by 10%

Explanation

AS 24 covers disposal in a piecemeal manner, by selling assets and settling liabilities, as well as abandonment, not merely a sale of the whole business. The operation must still represent a separate major line of business or geographical area and be distinguishable operationally and for financial reporting. A sale is therefore not mandatory, and no 10% production test exists.

Did you get it right without looking?

One question tells you little. A timed set on AS 24 Discontinuing Operations shows your real accuracy, how long you take and where you lose marks.

Practise AS 24 Discontinuing OperationsFree diagnostic mock

More AS 24 Discontinuing Operations questions