Disposal group definition

What is a Disposal Group?

A disposal group is a cluster of assets and liabilities that are intended to be sold off or disposed of in some other way as part of a single transaction. These items are classified separately as held for sale on an organization’s balance sheet, and are not depreciated. Instead, they are measured at the lower of their carrying amount or their fair value less costs to sell. Assets can be classified as held for sale if the organization intends to sell them to a third party within one year.

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Example of a Disposal Group

Transistor Corporation, a multinational technology company, decides to sell its mobile device division to focus on its core software business. The mobile device division includes various assets and liabilities that will be sold as a single transaction. The company classifies the following as part of the disposal group:

  • Assets:

    • Manufacturing equipment: $10 million

    • Inventory of mobile devices: $5 million

    • Patents and trademarks: $3 million

    • Accounts receivable: $2 million

    • Office buildings used by the division: $7 million

    • Cash held by the division: $1 million

  • Liabilities:

    • Accounts payable: $4 million

    • Warranties payable for sold products: $2 million

Once the company identifies a buyer and actively markets the division, it reclassifies these assets and liabilities as a disposal group held for sale on its balance sheet. The key accounting treatments include:

  • No further depreciation on long-term assets (e.g., buildings and equipment).

  • Assets and liabilities are measured at the lower of their carrying value or fair value minus selling costs.

The company presents the disposal group separately under "Assets Held for Sale" and "Liabilities Held for Sale" on its balance sheet, where there are $28 million of assets held for sale and $6 million of liabilities held for sale.

Once the company completes the sale, it removes the disposal group from its balance sheet, recognizing any gain or loss on disposal in its income statement.

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