NetFlix is terminating their product line of direct mail video purchases, which
ID: 2509412 • Letter: N
Question
NetFlix is terminating their product line of direct mail video purchases, which has been operating at a substantial loss for the past two years. This strategic change is to focus on their online or “streaming video” product line and they will no longer be involved in the direct mail portion of the business in the future whatsoever. Please discuss the accounting literature citations and contrast the TWO SEPARATE methods in accounting for Netflix’s strategic change on their Financial Statements AND in their accompanying financial statement related disclosures.
Explanation / Answer
This should be classified as discontinuing operations. IFRS 5 deals with this.
Discontinining operaions means the assets held for sale or to be disposed off over the period of time.
All assets and liabilities related to such business should be shown as fair value/carrying value.