7.3 Income Statement Presentation of Discontinued Operations
ASC 205-20
45-3 The statement in which
net income of a business entity is reported or the
statement of activities of a not-for-profit entity
(NFP) for current and prior periods shall report
the results of operations of the discontinued
operation, including any gain or loss recognized
in accordance with paragraph 205-20-45-3C, in the
period in which a discontinued operation either
has been disposed of or is classified as held for
sale.
45-3A The results of all discontinued operations, less applicable income taxes (benefit), shall be reported
as a separate component of income. For example, the results of all
discontinued operations may be reported in the statement where net income of a business entity is reported
as follows.
45-3B A gain or loss recognized on the disposal (or loss recognized on classification as held for sale) shall be
presented separately on the face of the statement where net income is reported or disclosed in the notes to
financial statements (see paragraph 205-20-50-1(b)).
45-11 For any discontinued operation initially classified as held for sale in the current period, an entity shall
either present on the face of the statement of financial position or disclose in the notes to financial statements
(see paragraph 205-20-50-5B(e)) the major classes of assets and liabilities of the discontinued operation
classified as held for sale for all periods presented in the statement of financial position. Any loss recognized on
a discontinued operation classified as held for sale in accordance with paragraphs 205-20-45-3B through 45-3C
shall not be allocated to the major classes of assets and liabilities of the discontinued operation.
In the period in which a component meets the criteria for presentation as a
discontinued operation, the component’s results of operations, including any gain or
loss recognized, should be reclassified to discontinued operations. The illustration
in ASC 205-20-45-3A shows a possible income statement presentation related to such
reclassification; however, the illustration depicts a single-year presentation only.
If comparative income statements are presented, an entity should also reclassify the
component’s results of operations to discontinued operations for all prior periods.
See Example 7-2 for an
illustration of a multiyear presentation.
In the illustration in ASC 205-20-45-3A, the income tax benefit and the loss on disposal are presented as
separate line items; however, entities may (1) present discontinued operations as a single line item that
is labeled, for example, “discontinued operations net of tax,” and (2) disclose, in the notes, the income
tax benefit or expense and the gain or loss recognized.
See Section 3.5 for
more information about the requirement in ASC 205-20-45-11 that any loss should not
be allocated to specific assets or classes of assets.
Under ASC 205-20, in the period in which the discontinued-operations criteria are met, an entity must
report the disposal in discontinued operations retrospectively in all periods presented. SEC registrants
should also evaluate the reporting considerations discussed in Chapter 8.
Example 7-2
Illustrative Income Statement Presentation of a Discontinued Operation
This example is a continuation of Example 7-1 and shows a simplified, comparative
income statement for a component that meets the criteria for
presentation as a discontinued operation in the current
period.
See Example 7-8 for
an illustration of the disclosure in the notes to
the financial statements (see ASC 205-20-50-5B(b))
of the major classes of line items constituting a
discontinued operation’s pretax profit or loss. In
addition, see Section 8.7 of
Deloitte’s Roadmap Earnings per
Share for more information about
how entities that present discontinued operations
would account for and present EPS.