Answer to Question #5656 in Finance for LaMarcus Streeter

Question

The disposal of a significant segment of a business is called?
discontinued operations.

an other expense.

an extraordinary item.

a change in accounting principle.

Answer 1

The disposal of a significant segment of business is called discontinued operations.

When a significant segment of a company's business that has been disposed (or, as well, sold or abandoned), it means that this segment will not be in operation any more, will not be continued or used for the further business of this company. Process of production or any other work activity connected to this segment are stopped. That is what this term explains.

Also we can mention that discontinued operations can range from a certain product line to an entire line of business. And when operations are discontinued, this is reported on the company's income statement as separate from income from continued operations.& &

We speak about income statement, because the disposal is normally the result of the end of estimated useful life of equipment in the exploitation that can be sold after. Also income from discontinued operations is listed separately for the investors not to be misled as to the source of a company's profit. Parsing out which assets are being divested or folded up gives a clearer picture of how a company will continue making money later on.