Question

During 2016, Savage Co. disposed of A Division, a major component of its business. Savage realized a gain of $3200000, net of taxes, on the sale of A's assets. A's operating losses, net of taxes, were $5900600 in 2016. How should these facts be reported in Savage's income statement for 2016?

	Total Amount to be Included in
	Income from		Results of
	Continuing Operations		Discontinued Operations

$3600000 loss $2940000 gain

0 660000 loss

660000 loss 0

2940000 gain 3600000 loss

Answer 1

Savage Company
Income Statement
For the Year Ended 31st December, 2016
Particulars	Explanation	Amount	Amount
Income/ (Loss) from Continuing Operations	As given in Question, Income from Continuing Operations is (=-3600000-660000+2940000)		(1320000)
Income/(Loss) from Discontinuing Operations
Income/(Loss) from operations of Division A	It is given net of Taxes, hence we need to gross it up I.e, [{-5900600/(100-35)}*100]	(9077846)
Income/(Loss) from disposal of Division A	It is given net of Taxes, hence we need to gross it up I.e, [{3200000/(100-35)}*100]	4923077
Net effect of income/ (Loss) from discontinued operations	(4154769)
Net Income/( Loss) for the period	(5474769)

Note:  The above calculations were made assuming a Corporate Tax of 35% in 2016

Also, as per both IFRS and US GAAP Discontinued operations are shown seperately so as to enable the users of Financial statements to understand that the revenue from discontinued operations won't be there for the next reporting period and the company would only be genrating the income from Continuing operations.