6.3 Income Statement Presentation for Disposals That Are Not Discontinued Operations
ASC 360-10
45-5 A gain or
loss recognized (see Subtopic 610-20 on the sale or transfer
of a nonfinancial asset) on the sale of a long-lived asset
(disposal group) that is not a discontinued operation shall
be included in income from continuing operations before
income taxes in the income statement of a business entity.
If a subtotal such as income from operations is presented,
it shall include the amounts of those gains or losses.
As noted above, ASC 360-10-45-5 requires that entities present gains or losses recognized from a sale of a long-lived asset (disposal group) that does not qualify as a discontinued operation “in income from continuing operations before income taxes in the income statement.” If, instead of income before income taxes, an entity presents a similar subtotal, such as income from operations or operating income, it should include such gains or losses.
Diversity in practice has been observed with regard to the presentation of gains or losses from the sale of disposal groups that meet the definition of a business in ASC 805-10. That is, some entities have presented such gains or losses in nonoperating income rather than as a component of income from operations when they present a subtotal such as income from operations or operating income. Entities should consider their specific facts and circumstances in deciding whether presentation in nonoperating income is appropriate and should ensure that the presentation is applied consistently.
See Deloitte’s Roadmap Business Combinations for more
information about determining whether a disposal group meets the definition of a
business.
6.3.1 Income Statement Presentation for Real Estate Investment Trusts
As part of its disclosure update and simplification technical release (DUSTR),
the SEC issued a final
rule in August 2018 to amend certain of its disclosure
requirements “that have become redundant, duplicative, overlapping, outdated, or
superseded, in light of other Commission disclosure requirements, [U.S. GAAP],
or changes in the information environment.” The final rule deleted SEC
Regulation S-X, Rule 3-15(a)(1), which prescribed guidance on the presentation
of gains and losses related to the sale of properties by REITs, since Rule
3-15(a)(1) conflicted with U.S. GAAP.
Before the issuance of DUSTR, Rule 3-15(a)(1) required REITs to “present separately all gains and losses on the sale of properties outside of continuing operations in the income statement.” In contrast, ASC 360-10-45-5 states that gains or losses recognized on sales of long-lived assets that are not reported in discontinued operations should be included in “income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses.” As indicated in the highlights of the June 25, 2014, CAQ SEC Regulations Committee joint meeting with the SEC staff, the staff had stated that it would not object to presentations that complied with either Rule 3-15(a)(1) or ASC 360-10, provided that the presentation was transparent and adequately disclosed.
However, because of the elimination of Rule 3-15(a)(1), REITs now must comply
with the requirements of ASC 360-10-45-5 after November 5, 2018 (i.e., the
effective date of DUSTR). While entities are not required by U.S. GAAP or SEC
regulations to present income from continuing operations before income taxes or
a similar subtotal such as operating income, if a REIT does present such a
subtotal, it should include gains or losses on the sale of properties that do
not qualify as discontinued operations. See Deloitte’s August 28, 2018,
Heads Up
for more information.