When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as
A)a prior period adjustment.
B)an extraordinary item.
C)an amount after continuing operations and before extraordinary items.
D)a bulk sale of plant assets included in income from continuing operations.

Question

Quizplus · Accepted Answer

According to accounting standards, the gain or loss on disposal of a discontinued operation should be reported as an amount after continuing operations and before extraordinary items. This is because the disposal of a discontinued operation is not a part of the ordinary course of business for the company and therefore, it should be reported separately from the income from continuing operations. However, it is not considered to be an extraordinary item or a prior period adjustment. Additionally, a bulk sale of plant assets included in income from continuing operations would not be appropriate as the transaction should be accounted for separately as a discontinued operation.

When a Company Discontinues an Operation and Disposes of the Discontinued