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

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, consideration will be collected within one year, and the proceeds are not expected to be used to settle long-term debt (in accordance with ASC 210-10-45-4).

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 a subtotal, such as income from operations or operating income is presented, 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; entities present the gain or loss within nonoperating income. Entities should carefully 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.

Disclosure requirements other than those in ASC 360-10-50-3 and 50-3A primarily inform financial statement users about an entity’s ongoing assets. While the extent of certain disclosures may vary on the basis of the facts and circumstances, we believe that disclosures required for assets held and used by an entity, which are mandated under other Codification topics (e.g., ASC 310 on accounts receivable, ASC 350 on goodwill and other intangible assets, ASC 842 on leases) are generally not required for a disposal group under ASC 360-10. This is because the reporting requirements outside ASC 360-10 are intended to provide financial statement users with the information they need to assess an entity's ongoing operations; therefore, similar disclosures for disposal groups would not be as meaningful. However, certain disclosures under ASC 275 (e.g., those pertaining to risks and uncertainties associated with the use of estimates) may also be appropriate for disposal groups.

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. Entities should also recognize that the distinction between disposing of a component that is “individually significant” and one that represents a “strategic shift” that has a “major impact” on financial results is likely to be subtle. Accordingly, such assessments may need to be made in concert with, rather than independent of, one another. Therefore, entities should also consider the judgments involved in the assessment of the requirements for classifying discontinued operations for individually significant disposal groups.

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