What is a Discontinued Operation?

It’s a part of a company that is either already sold or is planned to be sold, and it fits one of
these:

●​ It’s a separate major line of business or in a different location.​

●​ It’s part of a plan to sell such a major part of the business.​

●​ It’s a subsidiary bought only to be sold again.​

When is it Classified as "Held for Sale"?

●​ The company must be ready to sell it immediately, and​

●​ It must be very likely the sale will happen.​

When Do You Report It as Discontinued?

At the time when:

●​ The company has already sold it, or​

●​ It meets the conditions to be considered "held for sale".​

⚠️ Important Rule: You cannot go back and classify it as discontinued if the conditions
were only met after the reporting period ended. That means you report it in the next period,
not the current one.

What is a Component of an Entity?

A component is a part of a company, like a subsidiary or a major business line, that can be
clearly separated from the rest of the company in terms of its operations and cash flow.​
You can tell it apart for reporting purposes because its assets, liabilities, income, and
expenses are directly linked to it.

When Is an Operation Considered Discontinued?

An operation is discontinued when:

●​ The company no longer has any major involvement in it after it's sold or shut down.​

Examples:

a. A company that only works in electronics sells that whole division — that's a discontinued
operation.​
b. A meat company sells its furniture business — that’s also a discontinued operation because
it's a separate area.​
c. A media company sells all its radio stations — this is a discontinued operation, even if it still
has TV and publishing businesses.​
d. A large company with several industries (like real estate, manufacturing, etc.) sells any one
of them — that counts as a discontinued operation.

Not Considered Discontinued Operations:

These are normal business changes, not major disposals:

●​ a. Stopping a single product line (not an entire business segment).​

●​ b. Moving operations to a new location.​

●​ c. Closing a branch or facility just to cut costs or improve efficiency. ​

🔸
grape-flavored soda because it’s not selling well.​
Why it's not discontinued:​
The company is still in the soda business—it's just removing one flavor, not an entire
line of business.
●​
●​ b. Shifting of production or marketing activities from one location to
another
●​ Example:​
A clothing manufacturer moves its shirt production from a factory in Cebu to a newer,

🔸
more efficient plant in Laguna.​
Why it's not discontinued:​
The business continues—just in a new location. No business segment is being disposed
of.
●​
 ●​ c. Closing of a facility, factory, or branch to achieve productivity or
cost-saving
●​ Example:​
A bank closes 10 underperforming branches to cut costs but continues to operate

🔸
nationwide.​
Why it's not discontinued:​
The bank still offers the same services and didn’t exit a major line of business or region
completely.
●​
●​ These changes are part of normal business adjustments, not the disposal of a major
component, so they are not classified as discontinued operations.
●​

How It's Shown in the Income Statement:

Under PFRS 5, paragraph 33, income or loss from a discontinued operation is shown as one
single line, after the continuing operations.​
This line includes:

●​ Net profit or loss from that operation (after tax), and​

●​ Any gain or loss from revaluation or selling the discontinued part.​

What Is Included in Discontinued Operation Reporting:

●​ a. All revenues, expenses, profit/loss of that part during the period (plus related taxes).​

●​ b. An impairment loss is recognized when the fair value less cost of disposal of the
discontinued operation is lower than the carrying amount of the net assets. If the
fair value less cost of disposal is higher than the carrying amount the expected gain
is not recognized.​

●​ c. Any actual gain or loss when the assets are sold or liabilities are settled is recognized
on the date it happens.​

●​ d. Employee termination costs and other direct shutdown costs are included.

How to Present the Assets and Liabilities of a Discontinued Operation

1.​ Separate Presentation​

○​ Liabilities are also shown as one line under current liabilities.​

○​ ❌ You cannot combine or offset them with other assets or liabilities of the
business.​

2.​ Measurement​

○​ Assets held for sale must be measured at the lower of:​

■​ Their carrying amount (book value), and​

■​ Their fair value minus costs of disposal.​

○​ This helps avoid overstating their value.​

3.​ No Depreciation​

○​ Once assets are classified as held for sale, they should not be depreciated
anymore.​

4.​ No Restatement of Prior Year​

○​ If the asset is newly classified as held for sale this year, you do not change how
it was presented in last year’s balance sheet.​

✅ Example:
A company decides in 2025 to sell one of its subsidiaries. That subsidiary’s:

●​ Assets worth ₱10 million → shown under current assets as “Assets held for sale”.​

●​ Liabilities worth ₱4 million → shown under current liabilities as “Liabilities held for
sale”.​

●​ If fair value less cost to sell is ₱9 million, it must record a ₱1 million loss.​

●​ No depreciation is charged on these assets anymore.​