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CA Intermediate · Advanced Accounting · AS 24 Discontinuing Operations

Under AS 24, which of the following is a correct statement about when a part of an enterprise's business qualifies as a 'discontinuing operation'?

A discontinuing operation must be a separate major line of business or geographical area of operations that is distinguishable operationally and for financial reporting, and which the enterprise is disposing of or abandoning. Mere reduction in volumes or changes in product mix do not qualify.

  1. AIt must represent a separate major line of business or geographical area of operations and be distinguishable operationally and for financial reportingCorrect
  2. BIt qualifies merely if the enterprise gradually reduces production volumes in a plant
  3. CIt qualifies if an enterprise changes its product mix or phases out a product line within a continuing segment
  4. DIt qualifies only if the entire enterprise is being wound up

Explanation

AS 24 requires that the operation represent a separate major line of business or geographical area, and be distinguished operationally and for financial reporting purposes, besides the enterprise disposing of substantially in entirety or abandoning it. Gradual reduction in volumes, product mix changes and phasing out of a product line within a continuing line do not by themselves make it a discontinuing operation. Winding up of the whole enterprise is not a requirement.

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