What are the criteria for classifying discontinued operations under IFRS 5?

What are the criteria for classifying discontinued operations under IFRS 5?

• A. Temporary closure of operations only
• B. Represents a separate major line of business or geographic area
• C. Simple profitability analysis
• D. Only subsidiaries with significant losses

Answer: (B)

Under IFRS 5, for an entity to classify operations as discontinued, it must meet specific criteria. One key criterion is that the operations must represent a separate major line of business or a geographical area of operations. This classification is essential because it provides users of financial statements with information about the performance of the components that are being divested or are no longer continuing, which helps in understanding the ongoing profitability of the remaining operations. Additionally, classifying operations this way allows stakeholders to assess the impact of discontinued operations on the overall financial position and performance of the entity. It aids in transparency regarding the financial effects of selling or otherwise disposing of segments of the business that are no longer part of the entity's strategic focus. Other options, such as temporary closure, profitability analysis, or only focusing on subsidiaries with losses, do not align with the established IFRS 5 requirements. The focus on major lines of business or geographic areas ensures that the classification is grounded on substantive operational characteristics, rather than arbitrary financial results or temporary status changes.

Under IFRS 5, for an entity to classify operations as discontinued, it must meet specific criteria. One key criterion is that the operations must represent a separate major line of business or a geographical area of operations. This classification is essential because it provides users of financial statements with information about the performance of the components that are being divested or are no longer continuing, which helps in understanding the ongoing profitability of the remaining operations.

Additionally, classifying operations this way allows stakeholders to assess the impact of discontinued operations on the overall financial position and performance of the entity. It aids in transparency regarding the financial effects of selling or otherwise disposing of segments of the business that are no longer part of the entity's strategic focus.

Other options, such as temporary closure, profitability analysis, or only focusing on subsidiaries with losses, do not align with the established IFRS 5 requirements. The focus on major lines of business or geographic areas ensures that the classification is grounded on substantive operational characteristics, rather than arbitrary financial results or temporary status changes.