FAR-F1-M5-Income Statement Discontinued Operations

Question 1

When is the earliest time a component of an entity can be reported as a discontinued operation?

Answer 1

When it meets the criteria for HELD FOR SALE.
Which constitutes the following:
1. Management commits to a plan to sell the component.
2. Component is available for immediate sale in present condition.
3. Sale of the component is probable and expected to be completed within one year.
4. It is unlikely that a significant change to the plan occurs or the plan is withdrawn.
5. The sale of the component is being actively marketed.

Question 2

What are the various types of accounting changes and how are they treated?

Answer 2

1. Accounting estimate: proactively (this year and going forward)
2. Accounting principle: retroactively (this year and going back)
3. Accounting error: retroactively (this year and going back)

Question 3

What is an example that qualifies as a discontinued operation?

Answer 3

Selling off a SEGMENT of your business. It must be an ENTIRE SEGMENT, not just a production line. Also, it must represent a strategic shift.

Question 4

How is the discontinued operations presented on the income statement?

Answer 4

Discontinued operations on the income statement are presented net of tax. The “Results of Operations” are presented on one line, and then the gain or loss on the “Disposal of the business segment” is reported on a separate line.

Ex:
Results of Operations of Segment B (less income tax)
+ or - gain or loss on disposal of Segment B (less taxes if gain or less tax savings if loss)
= Overall gain or loss of discontinued operations.