Chapter 6 — Presentation and Disclosure Requirements for Disposals That Are Not Reported as Discontinued Operations

6.1 Overview

For disposal groups that are classified as held for sale but that do not meet the criteria for discontinued-operations reporting, an entity must separately present the assets and liabilities of the disposal group on the face of the balance sheet only in the initial period in which they are classified as held for sale. The presentation and disclosure requirements for a disposal group that is classified as held for sale, or that has been disposed of but does not qualify for discontinued-operations reporting, differ depending on whether the disposal is an individually significant component of an entity. Because the term “individually significant” is not defined, entities will need to apply judgment in interpreting this term.

6.2 Balance Sheet Presentation for Assets (Disposal Groups) Classified as Held for Sale That Are Not Discontinued Operations

ASC 360-10

Presentation of Long-Lived Assets or Disposal Group Classified as Held for Sale

45-14 A long-lived asset classified as held for sale (but not qualifying for presentation as a discontinued operation in the statement of financial position in accordance with paragraph 205-20-45-10) shall be presented separately in the statement of financial position of the current period. The assets and liabilities of a disposal group classified as held for sale shall be presented separately in the asset and liability sections, respectively, of the statement of financial position. Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets and liabilities classified as held for sale shall be separately presented on the face of the statement of financial position or disclosed in the notes to financial statements (see paragraph 360-10-50-3(e)).

For disposal groups that are classified as held for sale but that do not meet the criteria for discontinued-operations reporting, ASC 360-10-45-14 requires that the assets and liabilities of the disposal group be separately presented on the face of the balance sheet only in the initial period in which it is classified as held for sale. As a result, if a disposal group is sold in the same period in which it is classified as held for sale, the assets and liabilities would not be separately presented in the balance sheet. We believe that, while not specifically addressed in ASC 360, in such circumstances, an entity should not reclassify prior-period balance sheets. Such disposal groups are distinguishable from those that do qualify for discontinued-operations reporting, since an entity would be required to reclassify the prior period for the latter. However, in the absence of specific guidance, we understand that diversity in practice may exist.

In the period in which long-lived assets or disposal groups that do not qualify as discontinued operations are classified as held for sale, their major classes of assets and liabilities must be either (1) presented on the face of the balance sheet in accordance with ASC 360-10-45-14 or (2) disclosed in the notes in accordance with ASC 360-10-50-3(e).

ASC 360-10 does not address whether entities should separately present the assets and liabilities of a disposal group classified as held for sale as current and noncurrent. Accordingly, we believe that it is acceptable to present these assets and liabilities as current in the current-period balance sheet if it is probable that the sale will occur and consideration will be collected within one year.

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.

6.4 Disclosures for Disposals That Are Not Discontinued Operations

ASC 360-10-50-3 requires the following disclosures for disposals that do not meet the criteria for discontinued-operations reporting only in the period in which the component is classified as held for sale or disposed of:

ASC 360-10

50-3 For any period in which a long-lived asset (disposal group) either has been disposed of or is classified as held for sale (see paragraph 360-10-45-9), an entity shall disclose all of the following in the notes to financial statements:

A description of the facts and circumstances leading to the disposal or the expected disposal.
The expected manner and timing of that disposal.
The gain or loss recognized in accordance with paragraphs 360-10-35-37 through 35-45 and 360-10-40-5.
If not separately presented on the face of the statement where net income is reported (or in the statement of activities for a not-for-profit entity), the caption in the statement where net income is reported (or in the statement of activities for a not-for-profit entity) that includes that gain or loss.
If not separately presented on the face of the statement of financial position, the carrying amount(s) of the major classes of assets and liabilities included as part of a disposal group classified as held for sale. Any loss recognized on the disposal group classified as held for sale in accordance with paragraphs 360-10-35-37 through 35-45 and 360-10-40-5 shall not be allocated to the major classes of assets and liabilities of the disposal group.
If applicable, the segment in which the long-lived asset (disposal group) is reported under Topic 280 on segment reporting.

6.5 Disclosures for Individually Significant Assets (Disposal Groups) That Are Not Discontinued Operations

Entities must disclose information about pretax profit or loss if a long-lived asset (disposal group) includes an individually significant component that either has been disposed of or is classified as held for sale and does not qualify for discontinued-operations reporting. If an individually significant component includes a noncontrolling interest, the pretax profit or loss attributable to the parent must also be disclosed.

The term “individually significant” is not defined. For instance, it is unclear how an entity should determine whether a disposal is major, individually significant, or not significant. As with their assessment of “strategic shift” and “major,” entities will need to use judgment and should consider both quantitative and qualitative factors related to the effect of the disposal on their balance sheets, income statements, and statements of cash flows.

ASC 360-10

50-3A In addition to the disclosures in paragraph 360-10-50-3, if a long-lived asset (disposal group) includes an individually significant component of an entity that either has been disposed of or is classified as held for sale (see paragraph 360-10-45-9) and does not qualify for presentation and disclosure as a discontinued operation (see Subtopic 205-20 on discontinued operations), a public business entity and a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market shall disclose the information in (a). All other entities shall disclose the information in (b).

For a public business entity and a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, both of the following:
1. The pretax profit or loss (or change in net assets for a not-for-profit entity) of the individually significant component of an entity for the period in which it is disposed of or is classified as held for sale and for all prior periods that are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity) calculated in accordance with paragraphs 205-20-45-6 through 45-9.
2. If the individually significant component of an entity includes a noncontrolling interest, the pretax profit or loss (or change in net assets for a not-for-profit entity) attributable to the parent for the period in which it is disposed of or is classified as held for sale and for all prior periods that are presented in the statement where net income is reported (or statement of activities for a not-for-profit entity).
For all other entities, both of the following:
1. The pretax profit or loss (or change in net assets for a not-for-profit entity) of the individually significant component of an entity for the period in which it is disposed of or is classified as held for sale calculated in accordance with paragraphs 205-20-45-6 through 45-9.
2. If the individually significant component of an entity includes a noncontrolling interest, the pretax profit or loss (or change in net assets for a not-for-profit entity) attributable to the parent for the period in which it is disposed of or is classified as held for sale.

6.6 Interim Disclosures

Entities that issue interim financial data, such as SEC registrants, should consider the disclosure requirement in ASC 270. Specifically, ASC 270-10-45-11A states:

Effects of disposals of a component of an entity and unusual or infrequently occurring transactions and events that are material with respect to the operating results of the interim period shall be reported separately. Gains or losses from disposal of a component of an entity and unusual or infrequently occurring items shall not be prorated over the balance of the fiscal year.

In addition, ASC 270-10-50-2 states, in part:

If interim financial data and disclosures are not separately reported for the fourth quarter, users of the interim financial information often make inferences about that quarter by subtracting data based on the third quarter interim report from the annual results. In the absence of a separate fourth quarter report or disclosure of the results (as outlined in the preceding paragraph) for that quarter in the annual report, disposals of components of an entity and unusual or infrequently occurring items recognized in the fourth quarter, as well as the aggregate effect of year-end adjustments that are material to the results of that quarter (see paragraphs 270-10-05-2 and 270-10-45-10) shall be disclosed in the annual report in a note to the annual financial statements.

6.7 Flowchart Illustrating the Required Disclosures for Assets (Disposal Groups) That Are Not Discontinued Operations

ASC 360-10

55-18A The following flowchart provides an overview of the disclosures required for disposals of long-lived assets and individually significant components of an entity that do not qualify for presentation and disclosure as a discontinued operation (see Subtopic 205-20 on discontinued operations).