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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Mehta Engineering Ltd. approved a plan to close its tools division. Which of the following events would NOT, by itself, make the closure qualify as a discontinuing operation under AS 24?

Shifting a division's production to another plant of the same company while continuing the business does not qualify as a discontinuing operation. AS 24 needs the enterprise to dispose of substantially all of a separate major line of business or geographical area, by sale, abandonment or piecemeal disposal.

  1. AThe division is a separate major line of business and the company disposes of it substantially in its entirety by selling it
  2. BThe division is a separate geographical area of operations and is abandoned
  3. CThe company merely shifts the division's production to another existing plant of the same company, continuing the same businessCorrect
  4. DThe division is a distinguishable component and is disposed of piecemeal, with substantially all assets sold and liabilities settled

Explanation

AS 24 requires that the enterprise is disposing of substantially all of a component, whether by sale, abandonment, or piecemeal, and that the component represents a separate major line of business or geographical area. Merely relocating production while continuing the same business is not a disposal or termination of the operation, so it does not qualify. The other options describe disposals of a distinguishable major component.

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