Discontinuing Operations – An Analytical Study of AS 24 and Ind AS 105 with Special Reference to Going Concern Concept and COVID-19 Implications
1. Introduction
In the ever-evolving landscape of financial reporting, the disclosure and presentation of discontinuing operations holds critical importance. Accounting Standard (AS) 24 issued by the Institute of Chartered Accountants of India (ICAI) sets forth comprehensive guidelines for recognising, measuring, and presenting discontinuing operations in financial statements. Its corresponding standard under the Ind AS framework is Ind AS 105 – Non-current Assets Held for Sale and Discontinued Operations.
The term ‘discontinuing operation’ is not merely a description of a business winding up a small activity; it encompasses a significant decision that impacts financial structure, performance metrics, and the going concern assessment. Given the extraordinary circumstances created by COVID-19, many businesses faced operational discontinuance due to market contractions, supply chain disruptions, and strategic reorientations.
This article undertakes a detailed exploration of AS 24 and Ind AS 105, including their objectives, scope, recognition principles, disclosures, and their integration with the going concern concept. It further analyses COVID-19’s impact and uses practical illustrations, numerical examples, and case references relevant to the Indian context.
2. Objective and Scope of AS 24
The objective of AS 24 is to establish principles for reporting information about discontinuing operations so that users of financial statements can make informed economic decisions. The standard ensures timely disclosure to help stakeholders assess the financial implications and strategic direction of an entity.
Scope: AS 24 applies to all discontinuing operations meeting its definition, regardless of the industry. However, it excludes disposals of small-scale activities that do not constitute a separate major line of business or geographical segment. Ind AS 105 extends the scope by also prescribing measurement requirements for assets held for sale.
3. Definition and Essential Criteria for Discontinuing Operations
Under AS 24, a discontinuing operation is a component of an enterprise:
1. Disposed of substantially in its entirety, in a single transaction or in stages;
2. Represents a separate major line of business or geographical area; and
3. Can be distinguished operationally and for financial reporting purposes.
Key considerations include the ability to segregate its assets, liabilities, revenue, and expenses from the continuing operations.
4. Initial Disclosure Event – Timing and Substance
The ‘initial disclosure event’ is pivotal under AS 24. It occurs when:
– The enterprise enters into a binding sale agreement; or
– The board approves and announces a detailed formal plan to discontinue.
Timing of recognition is crucial, as premature disclosure without certainty can mislead stakeholders, while delayed disclosure may result in accusations of withholding material information.
5. Measurement and Presentation under AS 24
AS 24 focuses more on disclosure than on measurement. The results of discontinuing operations should be presented separately in the statement of profit and loss, with related cash flows shown distinctly in the cash flow statement. Ind AS 105, in contrast, requires measurement of disposal groups at the lower of carrying amount and fair value less costs to sell.
6. Corresponding Provisions under Ind AS 105
Ind AS 105 aligns with IFRS 5 and expands upon AS 24 by providing detailed recognition, measurement, and presentation rules. It applies to non-current assets (or disposal groups) held for sale and discontinued operations, ensuring they are measured at fair value less costs to sell, and presented separately on the balance sheet.
7. Comparative Analysis – AS 24 vs. Ind AS 105
While AS 24 is disclosure-centric, Ind AS 105 integrates both measurement and presentation, harmonising Indian GAAP with international practice. AS 24 does not mandate remeasurement at fair value for assets of discontinuing operations, whereas Ind AS 105 does. The treatment of impairments, reversals, and classification timelines is also more comprehensive in Ind AS 105.
8. Going Concern Concept – Conceptual and Practical Application
The going concern assumption underpins all financial reporting. It presumes that the entity will continue its operations in the foreseeable future and neither intends nor needs to liquidate. Discontinuing operations do not necessarily imply the absence of going concern, as a business may close one segment while sustaining others profitably.
However, when discontinuance significantly impacts the entity’s viability, management must evaluate whether the going concern assumption remains valid. Indicators such as recurring losses, inability to refinance, and severe demand collapse (as seen during COVID-19) require careful assessment. Auditors are obligated under SA 570 to evaluate management’s going concern assessment and disclose material uncertainties.
9. AS 24 in the Context of COVID-19 – Real-World Implications
COVID-19 triggered a wave of strategic business exits. Many travel, hospitality, and retail enterprises discontinued specific lines to conserve resources. Under AS 24, entities had to promptly disclose such plans, while under Ind AS 105, they had to remeasure affected assets. Uncertainty in valuation during volatile markets posed additional disclosure challenges.
Case in point: Several Indian multiplex chains sold or shut down underperforming properties, disclosing them as discontinuing operations in FY 2020-21.
10. Illustrative Numerical Example
Consider ABC Ltd. operating in two segments – Electronics and Furniture. In March 2025, it enters into a binding agreement to sell the Furniture segment for ₹150 crore, whose carrying amount is ₹170 crore.
Under AS 24: Disclosure of the discontinuing operation with separate presentation of segment results.
Under Ind AS 105: The segment’s assets and liabilities would be measured at ₹150 crore (fair value) and impairment loss of ₹20 crore recognised immediately, with separate presentation on the balance sheet and profit and loss.
11. Real-life Indian Case Studies
Example 1: Tata Steel’s sale of its UK long products business (though under IFRS framework) mirrors the disclosure principles in AS 24.
Example 2: Jet Airways’ discontinuation of certain international routes prior to suspension of all operations.
Example 3: Retail chains exiting non-profitable city markets due to pandemic-related losses.
12. Auditor’s Role and Reporting Considerations
Auditors must ensure that discontinuing operations are identified accurately, disclosed timely, and measured in accordance with the applicable framework. They must evaluate management’s going concern assessment, especially if the discontinuance affects core operations.
13. Impact on Ratios, Valuation, and Stakeholder Decision Making
Discontinuing operations can distort profitability ratios, return on capital, and earnings per share. Analysts often adjust metrics to exclude discontinued segments for better comparability. Valuation models must be recalibrated considering the changed asset base and revenue potential.
14. Practical Challenges in Implementation
Key challenges include:
– Determining fair value in illiquid markets.
– Segregating historical data for discontinued segments.
– Communicating strategic intent without disrupting customer or employee confidence.
15. Conclusion and Professional Insights
AS 24 plays a vital role in enhancing transparency when significant components of an enterprise are discontinued. Its alignment with the going concern concept ensures that users understand whether such discontinuance signals deeper viability concerns. The COVID-19 era reinforced the necessity for timely, clear, and reliable disclosures. As Indian GAAP transitions increasingly toward Ind AS, professionals must remain adept at both frameworks to ensure compliance and stakeholder confidence.
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