ASC 205-20-45 requires segregation of any liabilities related to disposal groups classified as held for sale on the balance sheet. Assets and liabilities of a disposal group should not be offset and presented as a single amount; rather those assets and liabilities should be presented separately in the assets and liabilities sections of the balance sheet. For example, captions such as current assets held for sale, noncurrent assets held for sale, current liabilities held for sale and noncurrent liabilities held for sale could be shown. The major classes of liabilities classified as held for sale should be presented separately on the balance sheet or disclosed in the notes to the financial statements.

ASC 205-20-45 does not provide guidance on whether liabilities held for sale should be classified as current or noncurrent on the balance sheet. In general, when assessing whether a liability is current, a reporting entity may consider the guidance in ASC 210-10-45-1 through ASC 210-10-45-4. To classify all liabilities held for sale as current, a reporting entity should consider whether the disposal is expected to be consummated within one year of the balance sheet date and whether the reporting entity does not expect use the sale proceeds to reduce long-term borrowings. If such conditions are met at the balance sheet date, current classification may be acceptable. Classification should be assessed each reporting period date through the sale date.

We have seen instances in practice where liabilities of a disposal group that does not qualify as a discontinued operation have been reclassified on the balance sheets of periods ended prior to the period in which the component becomes held for sale or is disposed of, presumably under the theory that this is an extension of the reclassification requirement for operations of discontinued operations. While not required under ASC 205-20, the Codification of Statements on Auditing Standards Section 708, Consistency of Financial Statements, implies that such reclassifications are permissible and requires that material reclassifications be indicated and explained in the footnotes. Accordingly, reporting entities may retroactively segregate liabilities of a disposal group provided appropriate disclosure is made. For additional information related to discontinued operations, see FSP 27.

We also believe that, in a spin-off transaction that does not qualify as a discontinued operation, it is acceptable to reclassify the prior period balance sheet into segregated assets and liabilities (similar to if the entity had been held for sale). However, because assets and liabilities disposed of through a spin-off transaction are required to remain classified as held and used until the spin-off has occurred, reclassification of the prior year balance sheet would not be appropriate until completion of the spin-off.