Question

A component is qualified as a discontinued operation. What are the two elements that may be reported in discontinued operation on the income statement if the component is not sold by the end of the reporting period?

a) Revenues and gains of the component for the period.
b) Tax expense and tax benefit related to the income and loss of the component.
c) Operating income or loss from the component and an impairment loss.
d) Estimated gain on sale of the component and the related tax effects.

Answer 1

The two elements reported in discontinued operations on an income statement if the component is not sold by the end of the reporting period are operating income or loss and any impairment loss recognized.

Step-by-step explanation:

A discontinued operation is reported on the income statement if a component of an entity has been disposed of, or is classified as held for sale. The two elements reported if the component is not sold by the end of the reporting period are:

1. Operating income or loss from the component for the period.
2. Any impairment loss recognized on the re-measurement of the disposal group.

Discontinued operations are segregated in financial statements to help users distinguish ongoing operations from those that the entity plans to exit. The operating income or loss includes revenues and expenses directly attributable to the discontinued component. Similarly, if the fair value of the component decreases, an impairment loss is recognized. It's important to note that estimates of gains on sale are not reported until the sale actually occurs. Additionally, tax effects related to the component's income and loss are also reported, ensuring a comprehensive reflection of its financial impact.