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Discontinued Operations in the Income Statement


Discontinued operations are those items that are listed in the income statement separately from those referring to the continuing operations.


They are recorded when a company’s core business, product or service is shut down or divested.


in case of discontinued operations, the income statement’s main subtotals and items will look like this:


+ REVENUES

− Cost of revenues

= GROSS PROFIT

− Operating expenses, interests and tax

= INCOME FROM CONTINUING OPERATIONS

± INCOME/LOSS from DISCONTINUED OPERATIONS

= NET INCOME


So, for example, if the company has 15% of its revenues coming from the selling of a good that will be no longer produced, that income will be reported in that separate section, net of tax.


A loss from discontinued operations would be net of tax as well, since it can be tax-deductible.


This accounting method is useful in M&A, where it’s crucial to focus on what a business will generate as income in the future.



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