Discontinued Operations

Brian Krogol
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So let's quickly discuss two non recurring items that appear on our income statement, discontinued operations and extraordinary items. So the first one here, discontinued operations. This is when the company is planning to exit a major component of its business. Okay? It's exiting a business. So it's discontinuing some operations. It's not closing down its business altogether, it's just a portion of the business. So imagine there's a computer company that sells computers and service repair contracts. So they're selling both, they sell a computer and then they'll say, hey we'll repair the computer if you pay for this contract. But let's say it says you know what? The service contracts aren't making us that much money. Let's discontinue service contracts and just sell computers. So it's gonna have to do some special presentations of these discontinued operations. Okay. But I want to make a note that it's beyond the scope of this class. We're not gonna get into the details of discontinued operations. The most that you really need to know about it is that it shows up on the income statement and we show it separate from our regular operations, right? We're gonna show our income from our continuing operations. Just like we usually do, we're gonna show our revenue or sales or excuse me, our revenue, our cost of goods, sold, our operating expenses, all of that. But then we're gonna show are discontinued operations separately. How are we gonna show it? We're gonna show it at the bottom. So the first thing we want to note is that it's a non recurring item, right? Non both discontinued operations and extraordinary items are non recurring. We're not expecting for these things to show up on our income statement every year. Okay. So they're not a persistent activity of the business. We're expecting these discontinued operations to stop very soon. Okay. And when we show them on the income statement, like I said, we're not going to show them with the rest of our income, we're not going to bunch up the sales of the service contracts with the sales of the computers. No, we need to separate everything related to the discontinued operations. And what we're going to do is we're gonna show it as a single amount and We're gonna show it net of tax. So it's gonna show up basically at the bottom of the income statement and it's gonna be just shown as one item income from discontinued operations net of tax 500, whatever it is, right or loss. We might have a loss from these discontinued operations. And it'll just be shown at the bottom. We're not gonna show all the details those details are left for the footnotes. And on the balance sheet, we're also gonna show it separately these discontinued operations, we're gonna we're gonna show the assets and liabilities separately, but we're not going to net them as a single amount. Will show, hey discontinued assets. And it'll show these assets here and the discontinued liabilities, it'll show them separately from our regular assets and liabilities. Okay. So they're still going to show up there. The main thing you want to know is what a discontinued operation is. It's something that we're not going to continue doing in the future, and that we show it as a single amount net of tax at the bottom of our income statement. So we'll have an example of an income statement at the bottom of the sheet where we'll go over this one more time. All right. In the next video, let's talk about extraordinary II