Definition of discontinued operations

The discontinuance of a component of an entity whose operations and cash flows can be clearly distinguished from the rest of the entity.

The purpose is to show someone reading the financial statements which pieces of net income will continue.

What constitutes a discontinued operation?

When both of the following happen, a company has a discontinued operation:

• 1. A component of an entity or group of components has been sold or disposed of, or is considered held for sale; and 

  2. if the disposal represents a strategic shift in the company and will have a major effect on the company’s financial results.

Reporting discontinued operations: when the component has been sold

Reporting discontinued operations: when the component is held for sale