Question

Continuing and discontued operations

Answer 1

Operations of an entire division, subsidiary, or segment of a company where a formal plan exists to eliminate it from the company. (It involves more than pruning a product line of certain models of products.)

The revenues, gains, expenses, and losses pertaining to the business segment are removed from the company's continuing operations and are reported separately on the company's income statement. The amounts that pertain to discontinued operations are reported near the end of the income statement but before the amounts for extraordinary items and the cumulative effect of a change in an accounting principle. The amounts will be shown on a per share basis, if the company's stock is publicly traded.

The discontinued operations refer to the operations of a business which have been abandoned, sold, or else wise disposed of. As per accounting regulations, the continuing operations are required to be reported individually in the income statement other than discontinued operations. Besides, any profit or loss arising from the disposal of a division should be reported along with the operating results produced by discontinued segment.

In a straightforward manner, the discontinued operations can be defined as the segments of a business entity which have been sold or written off and are not maintained by the business any more. If a recognized loss occurs on the disposal of a discontinued operation, it becomes essential to disclose it either in accompanying notes or on the face of the income statement.

However, the Boards have provided a list of disclosures about disposal of components congregating the definition of discontinued operations to be provided by a business company or entity. These include:

• The key income and expense items that comprise the gain and loss generated by a discontinued operation.
• The main sections of cash flows, like investing, operating, and financing, of the discontinued operation.
• If, in case, the discontinued operation consists of a non-controlling interest, the gain or loss is attributable to the company.
• A reconciliation of the main sections of assets and liabilities of the discontinued operations categorized as held for sale and are disclosed in the accompanying notes to the financial statements to total assets and liabilities of discontinued operations categorized as held for sale which are presented individually on the front of statement of financial position.
• A reconciliation of the main income and expense items from the discontinued operations which are disclosed in the notes accompanying financial statements to the after-tax gain or loss from discontinued operations existing on the front of the income statement.

Continuing operations is the net income category found in the income statementthat accounts for a company’s regular, daily business activities, referring to the tasks required to make a product or service and deliver it to a customer. To succeed over the long term, a business must consistently generate earnings from operations, and a multi-step income statement reports income from continuing operations separately from non-operating income. A successful business should use continuing operations as the primary income source; that is, a company should make the bulk of its earnings from carrying out the reason it exists.