Discontinued operations income statement contains financial data related to discontinued operations, discontinued segments, components of discontinued operations, and gain or loss on disposal of discontinued operations. The discontinued operations income statement provides insights into the financial performance of a discontinued segment or operation, allowing users to assess its impact on the overall financial results of the reporting entity.
Structuring an Income Statement for Discontinued Operations
When a company discontinues one or more of its operations, it must present the financial results of those operations separately in its income statement. The following is a recommended structure for an income statement that includes discontinued operations:
- Revenue: This section should include all revenue generated by the company’s continuing operations.
Revenue from discontinued operations should be presented separately and should not be included in this section. - Cost and expenses: This section should include all costs and expenses incurred by the company’s continuing operations.
Costs and expenses associated with discontinued operations should be presented separately and should not be included in this section. - Other income and expense: This section should include any other income or expenses that are not related to the company’s continuing operations.
Other income and expense from discontinued operations should be presented separately and should not be included in this section. - Income from continuing operations: This section should include the net income or loss from the company’s continuing operations.
This is calculated by subtracting the total costs and expenses from the total revenue. - Income (loss) from discontinued operations: This section should include the net income or loss from the company’s discontinued operations.
This is calculated by subtracting the total costs and expenses associated with discontinued operations from the total revenue from discontinued operations. - Net income: This section should include the net income or loss for the entire company.
This is calculated by adding the income from continuing operations to the income (loss) from discontinued operations.
The following table provides an example of an income statement that includes discontinued operations:
| Item | Amount |
|---|---|
| Revenue | $1,000,000 |
| Cost and expenses | $600,000 |
| Other income and expense | $50,000 |
| Income from continuing operations | $450,000 |
| Income (loss) from discontinued operations | $100,000 |
| Net income | $550,000 |
Question 1:
What is the purpose of disclosing discontinued operations income separately?
Answer:
The purpose of disclosing discontinued operations income separately in the income statement is to provide transparent information about the financial impact of discontinued operations, which are segments of a business that have been sold or terminated. This disclosure allows users of financial statements to assess the ongoing performance of the company’s core operations and evaluate the potential impact of the discontinued operations on future financial results.
Question 2:
What factors determine whether an operation should be classified as discontinued?
Answer:
The classification of an operation as discontinued is based on whether management intends to sell or terminate the operation and whether the operation has generated or is expected to generate significant cash flows in the foreseeable future. The International Financial Reporting Standard (IFRS) 5 provides specific criteria for determining whether an operation is considered discontinued.
Question 3:
How is discontinued operations income calculated?
Answer:
Discontinued operations income is calculated by determining the operating income (or loss) of the discontinued operation, adjusting for any related gain or loss on disposal, and applying the income tax rate applicable to the discontinued operation. The resulting amount is then presented as a separate line item on the income statement, typically classified as either “income from discontinued operations” or “loss from discontinued operations.”
Well, there you have it, folks! We’ve covered the basics of discontinued operations income statement. I hope it’s given you a clearer understanding of how businesses account for discontinued operations. If you have any questions, feel free to give us a shout. And be sure to check back soon for more informative content on accounting and finance. Thanks for reading!