ASC Research F - Essay Example

The rationale behind treating this division as discontinued operation and held for sale has been discussed here and reporting of the position of financial statement for such division has been explained. A component of an entity can be considered discontinued operation if it does not have any involvement with the operation of the component after the disposal transaction. The sale of such asset or disposal group is probable or likely to occur and the transfer of such asset is expected to qualify for recognition as a complete sale within one year. Again the sale has been actively marketed at a reasonable price in relation to its current fair value. The period in which such transaction has occurred, the income statement of a business entity or statement of activities for not-for-profit entity (NFP) for current and prior periods should report the result of operation of component along with the gain or loss recognized in discontinued operations. The result of operation of a component of an entity either been disposed of or classified as held for sale will be reported in discontinued operations on the fulfilment of following conditions: On occurrence of the disposal transaction, the operation and cash flow of the component is required to be eliminated from the continuing operations of entity. Further, the entity is not required to have continuing involvement with the operation of the component after such disposal transaction. In a period in which the component of entity which has been disposed of or classified as held for sale, the income statement of the business entity or statement of activities of not-for-profit (NFP) entity should have the result of operation of component and gain or loss incurred in discontinued operations. The result for discontinued operation less income taxes applicable should be reported as a separate component of income before extraordinary items. Any adjustment to any amounts that has been previously reported under discontinued operations and is directly related to the disposal transaction in prior period is required to be separately classified under discontinued operations in current period. Such type of adjustments may arise in circumstances like resolution of adjustment of purchase price, retaining of product warranty and environmental obligations by seller, settlement of obligations of employee benefit plan provided the settlement should be related directly to the disposal transaction if there is a demonstrated relationship of direct cause and effect and the disposal should occur within one year following the disposal transaction unless delayed by circumstances beyond the control of entity. The business memorandum entailing the underlying principle for mining division of ABC Company which is to be sold off has been enclosed. BUSINESS MEMORANDUM ABC COMPANY MEMORANDUM TO: MATT ROGERS, CFO FROM: STAFF ACCOUNTANT DATE: 6/3/2013 SUBJECT: REPORTING OF MINING DIVISION INTRODUCTION It is known that ABC Company having six major divisions has recently decided to sell off its mining division. The company is actively seeking a buyer and has priced the division at fair value of the division’s assets and liabilities and it expects that the division will be sold during the next fiscal year. However, the division has been considered an operating segment; this memorandum entails the details of reporting the mining division in financial statement. BODY Research has been made on this issue from Accounting ...Show more