What are discontinued operations?
These operations still need to be accounted for in any relevant financial records. Find out how to report income from discontinued operations below, both for accounting and tax purposes. Discontinued operations refer to any aspect of a businesss operations that are no longer required or profitable. Examples of discontinued operations could include:  Closure of unprofitable division  Redundancy due to merger  Sale of a product line  Discontinuation of outdated services  Though the operations are discontinued, if theres any related income and/or expenses these must still be reported on the companys financial statements. The income statement discontinued operations information is listed on a separate line from continuing operations. Reasons for discontinued operations  There are numerous reasons why businesses might list discontinued operations. Its normal for a company to change and grow as time goes by. Certain product lines might no longer be profitable due to market trends or outdated technology, for example. Obsolete machinery and equipment might no longer be useful, or the company might need to shut down a branch in a region thats no longer a viable market. Segments of the business might be sold to another company, or the business model might shift entirely. These are all examples of typical changes that a company goes through in its lifespan, all of which could qualify for discontinued operations. Discontinued operations accounting practices  There are a few rules to keep in mind when recording expenses or income from discontinued operations. The first is that these items must be kept separate from continuing operations on the income statement, to avoid any confusion among investors or shareholders. Discontinued operations accounting procedures should follow regulatory standards, either in line with the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP). If youre based in the US, youre likely to be using GAAP. Reporting under IFRS  According to IFRS regulations, discontinued operations should be reported on the income statement provided they meet the following criteria:  The asset or division should already have been disposed of by the company or reported as being up for sale. The component is recognised as a separate business, and it must be either removed intentionally or there must be intent to sell it in the near future. Reporting under GAAP  The discontinued operations GAAP reporting criteria is similar to IFRS, but there are a couple of differences in wording and intent. Like IFRS, two main criteria must be met:  When the component is discontinued from the business, this eliminates all operations and cash flow from the companys overall operations. Discontinued means discontinued, with no new income generated after the sale. The discontinued operation can no longer have any involvement with the original company. The original company cant hold any continuing influence over the operations after theyve been sold. Also, unlike the IFRS requirements under GAAP the component cannot be listed for sale; the transaction must be completed. The situation will depend on the timing of the sale. For example, if the component ceases operations at the end of an accounting period, it will still yield a gain or loss which needs to be reported. One thing to take into account is that discontinued operations often operate at a loss, which is why theyre discontinued in the first place. This might lead to tax relief, but be sure to weigh the losses against the companys continuing, revenue-generating operations. As long as the companys still generating revenue overall, this will probably balance out the loss of discontinued operations. Be sure to consult with an accounting professional if in doubt. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.