Question
What is a good summary about the information below? Read the information below and give a response. A disposal of a component of a business
What is a good summary about the information below? Read the information below and give a response.
A disposal of a component of a business should be disclosed as a "discontinued operation" in the income statement. Discontinued operations are defined as parts of a company's core business/ product line that has been shut down for future use. Since an operation has been discontinued, it must be reported separately from continuing operations on the income statement. However, discontinued operations must only be reported if the disposal represents a strategic shift that has or will have a major effect on the entity's operations and financial results. For example, a Discontinued sale of a product line must be reported in the income statement if it represents 15 percent of a company's total revenues. On page 4-13, the textbook mentions, "A company that reports a discontinued operation must report on the face of the income statement the per share effect of income from continuing operations and net income. In addition, it must report per share amounts for discontinued items either on the face of the income statement or in the notes to the financial statements." Since discontinued operations can generate a total gain or loss for a company, it must be reported in relevance to income taxes. Also known as Intraperiod tax allocation, it helps financial statement users better understand the impact of income taxes on the various components of net income especially in terms of discontinued operations. This tax allocation can be reported as a gain or loss although it is often a future tax benefit because discontinued operations often incur losses if left up and running.
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