Pit Stop Center Case Study

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The restructuring of Auto World will have an impact on their current earnings and the store closures need to be properly disclosed. FASB ASC has specific guidelines that must be followed to report discontinued operations. According to numerous ASCs, Auto World’s closures of the Pit Stop Centers should not be reported as discontinued operations in Auto World’s second quarter financial statements. Rather than being reported as discontinued operations, the Pit Stop Center stores should be considered as continuation of operations. An entity that is classified as disposed or held for sale, under ASC 360-10-45-9, should be reported as discontinued operations, under ASC 205-20-45-3, when the two conditions under ASC 205-20-45-1 are met. First, the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction. And second, the entity…show more content…
ASC 205-20-55-25 gives three steps to help figure out whether the closures qualify as continuation of operations. The Pit Stop Centers closures qualify as continuation of operations under these steps. Another important thing to take into consideration is the second condition under ASC 205-20-45-1. This condition talks about significant continuing involvement. As is presented in the text of the case, management does plan to continue significant involvement after the closures. They plan to take some of the business that Pit Stop Centers offered and offer them at the Auto Boyz locations. These will be significant because they will include the sale of automotive services and tires. Overall, the significance of the continuing operations that will result from the closures of Pit Stop Centers are too significant to be considered as discontinued operations and need to be reported as continuation of

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