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Discontinuing Operations - Case Study Example

Case Study
Finance & Accounting
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Name of of Professor March 12, 2012 Discontinuing Operations In accounting for discontinued operations, ASC requires that operating income from discontinued operations and any gains or losses from their sale be segregated in the income statement, since these activities will not contribute to future income and cash flows…

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Discontinuing Operations

ASC states that the separation must be possible physically and operationally and for financial reporting purposes. At the measurement date, the firm will accrue any estimated loss from operations during the “phase-out period, that is, from the measurement date of the disposal date, and any estimated loss on sale or disposal. However any gain on disposal can be reported only after disposal, that is when realized (Accounting Standards Codification. Implementation Guidance and Illustrations 1). At end of the year the income statement reporting of discontinued operations should reproduces the income statement and partial footnotes of the Pit Stop centers. The income statement should show the two components of the segment have been excluded from reported sales and income from continuing operations. This means that reported sales and earnings will be restated to exclude the discontinued segment. The disclosure note should also provide summary disclosure of the net assets and operating results of the discontinued segment. However, any gain or loss from the sale of a portion of a business segment must be reported pretax as separate component of income from continuing operations rather than as a discontinued operation. Firms are encouraged to disclose separately the affected assets and liabilities on the balance sheet. ...
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