Discontinued Operations
Candlefocus EditorDiscontinued operations refer to parts of a company's operations that have been either shut down or divested. This could be a business unit, a product line, or even an entire company the company has decided not to keep. The purpose of this accounting classification is to make a clear distinction between normal operations, which should be included in the usual income statement, and those operations that have been discontinued and will not be included in ongoing results.
Discontinued operations are reported on the income statement as a separate entry from continuing operations. All costs associated with discontinued operations should also be reported separately. This can include assets such as goodwill, long-term assets, and intangible assets, as well as liabilities.
Discontinued operations often come about when acquisitions occur. By understanding the assets that are being divested, investors can gain a better understanding of how the company will make money in the future, as well as how much cash the company potentially has available for future investments.
The Financial Accounting Standards Board (FASB) requires that discontinued operations be reported at least once when they occur. This allows investors and financial analysts to have an accurate picture of a company's financial performance. Companies are also required to report any fines and losses resulting from discontinued operations on their income statement.
In conclusion, discontinued operations are an accounting distinction that allows a clear classification between normal and discontinued operations. By disclosing the details of their discontinued operations on the income statement, companies provide investors and financial analysts with an accurate picture of the company's financial performance. This allows them to make informed decisions on the company’s future prospects.