#cfa-level-1 #financial-reporting-and-analysis #non-recurring-non-operating-items #understanding-income-statement
1. Discontinued operations
Discontinued operations are not a component of persistent or recurring net income from continuing operations. To qualify, the assets, results of operations, and investing and financing activities of a business segment must be separable from those of the company. The separation must be possible physically and operationally, and for financial reporting purposes. Any gains or disposal will not contribute to future income and cash flows, and therefore can be reported only after disposal, that is - when realized.
- Subsidiaries and investees also qualify as separate components.
- Disposal of a portion of a business component does not qualify as discontinued operations. Instead, this is recorded as an unusual or infrequent item.