Discontinued Operations in the Income Statement
- Sep 22, 2022
- 1 min read
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.