Final answer:
Items included in discontinued operations generally comprise the operating income or loss up to the date of disposal, gains or losses on the disposal of assets, and impairment losses related to the discontinuation. These are separated to give a clearer picture of a company's ongoing earning potential.
Step-by-step explanation:
When a company discontinues a part of its operations, the financial results of this event are reported separately from the continuing operations in its financial statements. This separation ensures users of the financial statements can distinguish between results from ongoing operations and those from the parts of the business that have been shut down or sold. The reporting category is known as discontinued operations and typically includes three types of items:
- The operating income or loss from the discontinued operation up to the date of disposal.
- Any gain or loss associated with the disposal of the discontinued operation's assets.
- Impairment losses when the carrying amount of the assets of the discontinued operation is not recoverable and must be written down to their fair value.
It is crucial that these are reported separately to provide a clear view of a company's future earning potential and to allow for a more accurate analysis of its ongoing business activities.