1.4 Scope of ASC 205-20 — Presenting Discontinued Operations
ASC 205-20
05-1 This
Subtopic provides guidance on the presentation and
disclosure requirements for discontinued operations. A
discontinued operation may include a component of an entity
or a group of components of an entity, or a business or
nonprofit activity.
15-1 This
Subtopic follows the same Scope and Scope Exceptions as
outlined in the Overall Subtopic; see Section 205-10-15,
with specific transaction qualifications noted below.
15-2 The
guidance in this Subtopic applies to either of the
following:
- A component of an entity or a group of components of an entity that is disposed of or is classified as held for sale
- A business or nonprofit activity that, on acquisition, is classified as held for sale.
Pending Content (Transition
Guidance: ASC 805-60-65-1)
15-2 The guidance in this Subtopic
applies to either of the following:
-
A component of an entity or a group of components of an entity that is disposed of or is classified as held for sale
-
A business or nonprofit activity that, on acquisition or upon formation of a joint venture, is classified as held for sale.
15-3 The
guidance in this Subtopic does not apply to oil and gas
properties that are accounted for using the full-cost method
of accounting as prescribed by the U.S. Securities and
Exchange Commission (SEC) (see Regulation S-X, Rule 4-10,
Financial Accounting and Reporting for Oil and Gas Producing
Activities Pursuant to the Federal Securities Laws and the
Energy Policy and Conservation Act of 1975).
ASC 205-10
05-3 The Discontinued Operations
Subtopic discusses the conditions under which either of the
following would be reported in an entity’s financial
statements as a discontinued operation:
- A component of an entity that either has been disposed of or is classified as held for sale
- A business or nonprofit activity that, on acquisition, is classified as held for sale.
Pending Content (Transition
Guidance: ASC 805-60-65-1)
05-3
The Discontinued Operations Subtopic discusses the
conditions under which either of the following
would be reported in an entity’s financial
statements as a discontinued operation:
-
A component of an entity that either has been disposed of or is classified as held for sale
-
A business or nonprofit activity that, on acquisition or upon formation of a joint venture, is classified as held for sale.
05-3A If a
component of an entity that either has been disposed of or
is classified as held for sale does not meet the conditions
to be reported in discontinued operations, Section 360-10-45
on other presentation matters of property, plant, and
equipment provides guidance on presenting disposal gains and
losses and impairment losses on assets classified as held
for sale.
15-2 The
guidance in the Presentation of Financial Statements Topic
applies to business entities and not-for-profit entities
(NFPs).
ASC 205-20 applies to all businesses and not-for-profit entities
(NFPs). ASC 205-20 applies to a component, or group of components, of an entity or a
newly acquired business or nonprofit activity that meets the held-for-sale criteria
upon acquisition. A component of an entity “comprises operations and cash flows that
can be clearly distinguished . . . from the rest of the entity.” Unlike a disposal
group, a component of an entity does not need to include long-lived assets. For
example, an equity method investment is a financial instrument and is not within the
scope of ASC 360-10 but could qualify for discontinued-operations reporting under
ASC 205-20. If so, an entity would apply the held-for-sale criteria and
discontinued-operations reporting guidance in ASC 205-50 for the disposal of an
equity method investment.
ASC 205-20 includes a scope exception for oil and gas properties
that use the full-cost method of accounting. Paragraphs BC27 and BC28 of ASU 2014-08
explain the FASB’s reasoning behind retaining this exception:
Under the full cost method of accounting, all costs associated with property
acquisition, exploration, and development activities are capitalized to cost
centers, which are established on a country-by-country basis. The definition
of discontinued operation, however, applies to disposals of components of an
entity, which is defined as the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and
liabilities.
The Board concluded that the definition of discontinued
operation will not be operable under the full cost method of accounting
because of differences in the tracking and allocation of costs, which is at
a much higher level than the method in Topic 360 and in the definition of
discontinued operation.
Changing Lanes
In August 2023, the FASB issued ASU 2023-05, which requires entities
that qualify as either a joint venture
or a corporate joint venture, as defined in the ASC
master glossary, to apply a new basis of accounting upon the formation of
the joint venture. The ASU’s amendments “are effective prospectively for all
joint venture formations with a formation date on or after January 1, 2025.”
Early adoption is permitted.
The ASU amends ASC 205-10-05-3(b), and makes related amendments to ASC
205-20, to indicate that a “business or nonprofit activity that, on
acquisition or upon formation of a joint venture, is classified as held for
sale” by the newly formed joint venture would be reported as a discontinued
operation.