4.2 Discontinued Operations
4.2.1 Discontinued Operations — Carve-Out Entity
When the financial statements of the carve-out entity reflect a disposal of a
component of the carve-out entity, management must determine
whether it should present the disposal as a discontinued
operation in the carve-out financial statements even if the
disposal did not qualify for discontinued-operations
presentation in the parent entity’s consolidated financial
statements. Specifically, management would consider the
guidance in ASC 205-20-45-1B on reporting a discontinued
operation, which states, in part:
A
disposal of a component of an entity or a group of
components of an entity shall be reported in
discontinued operations if the disposal represents a
strategic shift that has (or will have) a major
effect on an entity’s operations and financial
results.
Management’s determination that a portion of the carve-out entity’s operations
should be presented in discontinued operations will also
affect the carve-out entity’s statement of cash flows. See
Deloitte’s Roadmap Statement of Cash
Flows for further discussion. For
additional guidance on reporting discontinued operations,
see Deloitte’s Roadmap Impairments and Disposals
of Long-Lived Assets and Discontinued
Operations.
4.2.2 Discontinued Operations — Parent
Under ASC 205-20, the parent entity is required to evaluate
whether the effect of a disposal resulting from a carve-out
transaction should be presented as a discontinued operation.
Depending on the form of the carve-out transaction, this
evaluation may occur when the carve-out entity (1) meets the
criteria in ASC 205-20-45-1E to be classified as held for
sale, (2) is disposed of by sale, or (3) is disposed of
other than by sale in accordance with ASC 360-10-45-15
(e.g., by abandonment or in a distribution to owners in a
spin-off). If the disposal meets the conditions to be
reported as a discontinued operation by the parent entity,
it would be unlikely that amounts presented as discontinued
operations for the disposal in the parent-entity financial
statements would equal the operations reflected in the
carve-out entity’s financial statements (e.g., because of
differences between how expenses may have been allocated in
the carve-out financial statements and how expenses
associated with the discontinued operation are
determined).