Question on reporting held-for-sale components in quarterly and annual reports.

Jun 30, 2012
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Hey CPAs and Accounting students. I have a basic accounting question.

My textbook says (paraphrase):

When a company classifies a component as held for sale it reports it as an after-tax loss or gain, along with the income (loss) from the operations of the held-for-sale component. Since the fair value of the company is always changing, the company has to re-adjust the book value of the company each quarter to reflect the re-adjusted gain/loss. The company combines these quarterly gains (losses) and reports only one net gain (loss) in its annual financial statements. If the company reports a gain, this is a rare case where a gain is reported prior to realization.

My question is, how are these adjustments reflected in the quarterly and annual reports?

Say a company declares a component as held-for sale before Q2. If it isn't able to find a buyer before Q3 and Q4, how does the company declare the adjusted gain/loss in the quarterly report for Q3 and Q4?

If someone could give me some actual examples of financial reports, I would get a better understanding.

From my current understanding, the unrealized gain/loss for the component is reported in each quarterly report until it is sold, in which case it becomes a realized gain/loss. However, if the unrealized gain/loss is incorporated into part of the income/loss from discontinued operations and decreases the Net Income for each quarter, doesn't this understate the net income for the quarter? Essentially, reporting the gain/loss every quarter when it only happened in one quarter messes up the cumulative net income for the year.

I just started learning accounting by myself so please be gentle. =)



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Oct 12, 2011
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United States
Held for sale of a discontinued operation is at the lower of book or FV (less costs to sell) - you would never report a gain until its actually realized. It is correct that you report the impairment loss through net income when you make the FV assessment - but I am surprised its constantly adjusted. FV should not change that often and would only be if there are real changes in FV. In any event, you are permitted to keep adjusting the impairment loss but never in excess of the initial impairment taken (I.e cant take a gain). You can refer to FAS 144 for a complete discussion - paragraph 37refers to adjusting the initial loss and states.

"A loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell. A gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell). The loss or gain shall adjust only the carrying amount of a long-lived asset, whether classified as held for sale individually or as part of a disposal group. A gain or loss not previously recognized that results from the sale of a long-lived asset (disposal group) shall be recognized at the date of sale."

Held for sale is typically shown outside of continuing operations so the changes in the FV from each period are separately highlighted so that readers are not misled by the actual net income generated from continuing operations. Note that the loss on held for sale is in net income and not considered unrealized (not in OCI).

Hope this helps

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