3-3 Discontinued Operations

Question 1

How do you distinguish between the income (loss) pertaining to a discontinued business component and the gain (loss) on disposal of a business component?

Answer 1

Income (loss) from discontinued operations are separately identified in the income statement (net of tax) and presented after income from continuing operations for all years presented

Question 2

How is a disposal classified as discontinued operations?

Answer 2

1. A business component is held for sale, sold, or disposed of other than by sale (such as abandoned)
2. The disposal represents a strategic shift

Question 3

Elimination of a Business Component

Answer 3

A business component is held for sale, sold or disposed of other than by sale (such as abandoned)

Question 4

Component of an Entity

Answer 4

Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
May be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group

Question 5

Existence of a Strategic Shift

Answer 5

Have a major effect on an entity’s operations and financial results could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity

Question 6

How do you report the results of discontinued operations separately in the income statement?

Answer 6

The results are removed from income from continuing operations for all year presented

Question 7

After a business component is classified as held for sale…

Answer 7

The sale may or may not be complete at the time of the next reporting date

Question 8

Intraperiod Tax Collection

Answer 8

Tax is allocated among various items within a given accounting period
(A portion of the total income taxes is allocated to discontinued operations in a given accounting period)

Question 9

Operating Income

Answer 9

While operating income is likely to recur in the future, unusual and/or infrequent items can be included that would not be expected to recur.

Question 10

Nonoperating Items

Answer 10

Certain items in nonoperating income are unlikely to recur

Question 11

Discontinued Operations

Answer 11

The financial effects of discontinued operations are not expected to recur

Question 12

What are two categories of income from discontinued operations result when a business component is sold after the reporting period?

Answer 12

1. Results of operations for the discontinued business component during the report period, net of tax
2. When applicable, impairment loss for the net of the component’s carrying value over its fair value less costs to sell, net of tax

Question 13

A company must disclose in its notes to the financial statements, additional information regarding the business component sold or held for sale… what is included?

Answer 13

Information that describes the events leading to the disposal or expected disposal, the expected manner and timing of that disposal, and gains or losses recognized.