Discontinued Operations
A business segment or component that has been sold, abandoned, or classified as held for sale, reported separately from continuing operations in financial statements.
What is Discontinued Operations?
Under GAAP (ASC 205-20), discontinued operations refers to a component of a business — a subsidiary, segment, business unit, or group of assets — that has been disposed of or meets the criteria to be classified as held for sale. The results of discontinued operations must be presented separately from continuing operations on the income statement, typically as a single net-of-tax line item labeled 'Income (loss) from discontinued operations.' This separation allows investors to evaluate the company's ongoing operational performance without distortion from one-time disposal gains, losses, or the operating results of units being wound down. Assets and liabilities of the discontinued component are also presented separately on the balance sheet. Any gain or loss on disposal is included within the discontinued operations section. This treatment ensures that earnings from continuing operations are comparable across periods, which matters greatly for equity research and valuation.
Example
General Electric reported discontinued operations for several years as it divested GE Capital and various industrial divisions. By presenting these as discontinued operations separately from its aviation and power segments, GE allowed investors to compare the profitability of its remaining core businesses year-over-year — without the gains from business sales or the losses from businesses being wound down distorting the core earnings trend.