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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Under AS 24, in which situation is a reportable segment or operation NOT regarded as a discontinuing operation?

Gradually phasing out a product line because demand shifts, without any single formal plan or sale, is not a discontinuing operation. AS 24 requires disposal in entirety, or piecemeal or abandonment, under a single co-ordinated plan.

  1. AThe enterprise sells substantially all of the operation in a piecemeal manner
  2. BThe enterprise abandons the operation under a board-approved, announced plan
  3. CThe enterprise gradually phases out a product line through a shift in customer demand without a formal plan or saleCorrect
  4. DThe enterprise sells the operation by a binding sale agreement

Explanation

AS 24 requires a discontinuing operation to be a distinct, separable component disposed of substantially in its entirety, or abandoned or disposed of piecemeal, under a single plan. Gradual phasing out of a product line due to demand shifts, with no single plan, does not qualify. Options A, B and D describe recognised forms of discontinuance.

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