Reporting Discontinued Operations

The term discontinued operations pertains to the elimination of a significant part of a company's business, such as the sale of an entire division of the company. (Eliminating a small portion of a product line does not qualify as a discontinued operation.)

To learn more about the required presentation of information to be disclosed see an intermediate accounting textbook. Our focus here is to show where the results of discontinued operations will appear in the company's income statement.

Below is an example of a single-step income statement containing discontinued operations. (If this were a corporation, income tax expenses would be part of the income statement and the gain on discontinued operations would be reduced by the income tax expense associated with the gain. A loss on discontinued operations would be reduced by the income tax savings associated with the loss.) See net of tax.

04X-table-04

Note that even in a single-step format shown above, the amount of the discontinued operations is separated out and added to the end of the income statement.

Below is a multiple-step income statement containing discontinued operations. (If this were a corporation, income tax expenses would be part of the income statement. As a result, the amount of the gain or loss on discontinued operations would be reduced by the income tax effect.)

04X-table-05

Note that the discontinued operations amount is shown near the bottom of the income statement. This is where it should appear on both single-step and multiple-step statements.