✏️+🎥Discontinued Operations🟢

Responses

1. 

   Srinivas Vajha 19 February 2024

   Impairment loss is not covered in discontinuing operations in the lectures

   1. 

      Deleted User 21 February 2024

      Hello Srinivas,

      We currently don’t have any lectures for impairment loss on discontinued operations.

      Farhat Lectures Support Team

      1. 

         Erika Polley 22 February 2024

         If Farhat follows the UWorld system so that this is supplementary to their system, why is impairment not addressed?

         1. 

            Deleted User 26 February 2024

            Hello Erika,

            In order for us to assist you,can you please mention the course name and chapter ?

            Farhat Lectures Support Team

2. 

   Deleted User 16 May 2024

   Video: Discontinued Operation

   Can I assume that the tax rate used for computing net of tax in discontinued operations would be the effective tax rate based on (Income before income tax from continuing operations + loss from discontinued operations) ?

   1. 

      Deleted User 19 May 2024

      Hello Mohit,

      Under U.S. GAAP, the company must record the gain or loss on discontinued operations net of tax. Therefore, you would take the Gain/Loss and multiply by “1 – tax rate ” to calculate the amount net of tax. You may also calculate each gain or loss net of tax separately.

      The tax rates should be statutory tax rate and in almost all cases it is a given in the example.

      Farhat Lectures Support Team

3. 

   Zongying Guo 18 May 2024

   The video quality is not good,I could not watch it clearly.

   1. 

      Deleted User 23 May 2024

      Hello Zongying,

      We will do our upmost to upgrade the quality of the video as soon as possible.

      Thank you for raising this.

4. 

   kareem isk 24 July 2024

   Hello,
   Can you update the video to include Impairment loss?
   Thanks,

   1. 

      Maroun, CPA 28 July 2024

      Hello Kareem,

      We will update the video!
      I will notify you once uploaded.

5. 

   Amer Shareef 28 July 2024

   If we’re separating Discontinued operation income then we should also separate relative cost of that particular section!!!?

   1. 

      Maroun, CPA 30 July 2024

      Hello Amer,

      The income (or loss) from discontinued operations should include both the revenue and the expenses directly attributable to the discontinued component.
      This includes operating income (or loss), any impairment loss, and any gains or losses from the sale or disposal of the component.

      I hope this helps!

6. 

   Jesse Garcia 1 November 2024

   At one part of the video (2:44) it says: “selling part of a business is not a discontinued operation” and then on the next slide the practice problem is selling a part of the business and is reported as a discontinued operation

   1. 

      Maroun, CPA 4 November 2024

      Hello Jesse,

      This is a great question and a common point of confusion when learning about discontinued operations!

      The key difference lies in understanding what qualifies as a discontinued operation. Not every sale of a part of a business qualifies. According to accounting standards, for a disposal to be classified as a discontinued operation, it must represent a significant strategic shift in the company’s operations or financial results.

      In the video, the phrase “selling part of a business is not a discontinued operation” refers to cases where the sale does not meet the criteria of a strategic shift. For example, selling a small, non-core segment of the business, like a product line that doesn’t significantly impact the overall business, wouldn’t qualify as a discontinued operation.

      However, in the practice problem on the next slide, Adam Inc. is selling its healthcare segment, which meets the criteria of a “strategic shift.” This is why it’s classified as a discontinued operation. The healthcare segment is likely significant enough to affect the company’s operations or financial results in a substantial way.

      Thus, the distinction is:
      – Not all sales are discontinued operations.
      – Only sales that meet the criteria of a strategic shift, like the disposal of a significant segment, are reported as discontinued operations.

      I hope this helps!

7. 

   George Wesley 3 March 2025

   in this video at minute 2:40, Mr. farhat said that selling part of the business isn’t a discontinued operation, and i assume that MCQ will not be straightforward, so how to differentiate between selling part of business and discontinued operation in MCQ

   1. 

      Maroun, CPA 5 March 2025

      Hello George,

      Selling part of a business isn’t automatically a discontinued operation. The key distinctions to look for in MCQs include:

      – Significance of the component: A discontinued operation must represent a major line of business or a significant geographical area. Simply selling a minor segment or asset doesn’t qualify.
      – Strategic Shift: Discontinued operations usually indicate a strategic change where the component no longer fits with the company’s core operations. If the sale doesn’t signal such a shift, it’s not classified as a discontinued operation.

      In MCQs, look for language that points to a major component being disposed of, or a strategic shift. If those elements are missing, it’s likely just a sale of part of the business rather than a discontinued operation.

      Hope this helps!

8. 

   Haydar Majeed 22 May 2025

   Dear Professor,
   I have two questions about the component types of the business that we should consider as discontinued operations:
   Q1 – Let’s say we have a factory that has two main lines, one line produces pickles and the other produces Juice. Furthermore, the juice line produces two types of products, orange and apple juice. Let’s assume the orange juice production contributes to more than 15% of total revenue, but we decided to stop it. Is that considered a strategic shift, knowing that we still have the product line?

   Q2 – In the lecture, professor Farhat said that sale of geographical area represents 20% of the total asset. Now, what exactly is the geographical area, is a land we use for operation, or land hold as investment, or something else. If it is a land for investment, could it be part of the third type of component which is a sale of an equity investment that is >=20%?

   Thank you!

   1. 

      Maroun, CPA 23 May 2025

      Hello Haydar,

      Recap of the FASB rule:
      A discontinued operation exists only when the company disposes of a component or group of components that represents a strategic shift and has (or will have) a major effect on the entity’s operations and financial results (ASC 205-20-45-1B).
      Typical examples the Board gives are:
      – disposal of a major line of business,
      – disposal of a major geographical area, or
      – disposal of a major equity-method investment.

      No bright-line percentages are provided; management must use judgment and disclose the reasons.

      Q 1 – Dropping the orange-juice SKU
      Component?
      The “orange-juice line” is operationally distinguishable: it has its own production run and revenues, so it meets the component definition.

      Strategic shift?
      ► The whole juice business (orange + apple) might be a major line, but discontinuing only one SKU within that line rarely qualifies as “major.”
      ► 15 % of total revenue is large enough to merit separate segment disclosure, but FASB’s strategic-shift test asks whether the disposal changes the way the company conducts its operations. If the juice division continues with apple juice, customers, distribution, and production infrastructure remain in place. That is usually not a strategic shift; it is a pruning of the product mix.

      Bottom line: Unless orange juice is so dominant that its exit fundamentally alters Johnson’s business model, the disposal is not reported as discontinued operations. You would report any shutdown costs and inventory write-offs in continuing operations.

      Q 2 – “Sale of a geographical area” and the 20 % figure
      What counts as a geographical area?
      Think of an entire operating presence in a region—plants, staff, customers, and cash flows located in, say, the Midwest or the EU. Selling the land only (whether used in operations or held for investment) doesn’t qualify because land by itself has no separate revenues or cash flows. You must be exiting operations in that region.

      • Why 20 %?
      The 20 % in the lecture was an illustrative threshold to show “major.” ASC 205-20 does not set a numeric test; many firms borrow the segment-reporting 10 %/25 % guidelines as a reasonableness check, but they still disclose their judgment.

      • Equity investment vs. land
      The third bullet in the standard refers to selling a significant equity-method investee (e.g., your 25 % stake in an overseas affiliate). A parcel of land— even investment property— is not an equity investment and would only be a discontinued operation if that land sale effectively disposes of an entire regional business (rare).

      I hope this helps!

      1. 

         Haydar Majeed 24 May 2025

         Thank you for a great detailed answer!

         1. 

            Maroun, CPA 26 May 2025

            You’re very welcome, Haydar! I’m glad my answer helped.

9. 

   Haydar Majeed 25 May 2025

   Hi Professor,
   Like the example of GE, I wanted to know how companies usually report income from different segments, is a line for each segment, or all is consolidated and if there are any specific requirements from FASB. Thank you.

   1. 

      Maroun, CPA 26 May 2025

      Hello Haydar,

      On the face of the income statement, everything is shown in one consolidated column; you will not see a separate revenue line for GE’s Power, Aviation, or Healthcare businesses. The detailed breakdown appears only in the “Segment Information” footnote and in MD&A.
      ASC 280 requires management to disclose, for each segment that meets the 10% tests for revenue, profit/loss, or assets (and together cover at least 75% of total external revenue), the segment’s external and inter-segment revenue, the profit-or-loss figure the chief operating decision maker (CODM) relies on, any internally reported assets, and any other line items the CODM reviews. Those segment totals are then reconciled back to the single consolidated numbers shown in the primary statements.

      I hope this helps!

10. 

    Deleted User 3 September 2025

    At timestamp 2:46 it say that “Selling a part of a business is not a discontinued operation.”

    I keep getting question like this wrong on Becker. Can you explain this concept further?

    What distinguishes a sale of a part of a business from a discontinued operation? Please give a few examples of both.

    1. 

       Maroun, CPA 5 September 2025

       Hello Malissa,

       That’s a really good question, and it’s one a lot of students get tripped up on because the CPA exam loves to test the subtle line between “just selling something” and what qualifies as a discontinued operation under U.S. GAAP (ASC 205-20).

       A discontinued operation must represent a “strategic shift” that has (or will have) a major effect on the entity’s operations and financial results.
       Simply selling off a small product line, or disposing of individual assets, does not qualify.

       Thus:
       – Selling part of a business (asset group, product line, store, etc.) = usually NOT a discontinued operation, unless it’s such a big piece that it changes the nature of the company.

       – Discontinued operation = disposal of a component of an entity (or a group of components) that is clearly distinguishable and represents a strategic shift.

       Examples:
       • Not a Discontinued Operation (just part of a business sold):
       1. Retail example: A nationwide retailer sells one of its 200 stores. That’s just an asset disposal, not a strategic shift.
       2. Manufacturing example: A car manufacturer stops making one model of car but continues producing other models. That’s normal product rationalization, not a discontinued operation.
       3. Tech example: A software company discontinues one app feature but continues the platform. That’s part of the ongoing business, not a discontinued operation.

       • Discontinued Operations:
       1. Geographic shift: A company exits all operations in South America (entire geographic area). That’s a strategic shift.
       2. Major product line: A pharmaceutical company sells or shuts down its entire oncology division. That’s a component of the business with distinct cash flows.
       3. Subsidiary sale: A conglomerate sells an entire subsidiary (e.g., its food division, while retaining retail and insurance divisions). That is clearly a discontinued operation.

       I hope this helps clarify!

11. 

    Kashif Qureshi 5 February 2026

    Hello,
    Why operating results of discontinued operations before the date of held for sale are included in discontinued operations.
    For example, operating losses were $ 110,000 for the period Jan.1 to June, Year 1. Operating losses were $ 100,000 for the period July.1 to Oct. 1, Year 1.
    On July 01, year 1, ABC Co. approved a plan to dispose of Segment X on Oct. 01, year 1. Income from continuing operations $ 258,000 excluding Segment X. Tax rate is 40%. What is the loss of discontinued operations.

    1. 

       Maroun, CPA 9 February 2026

       Hello Kashif,

       Because GAAP defines discontinued operations as the results of operations of a component that has been disposed of or classified as held for sale. Once Segment X meets the discontinued operations criteria, the income statement presents one line for that component that includes:
       – Operating results of the component for the entire period presented up to the disposal date, and
       – The gain/loss on disposal (if any).

       Thus, we don’t start discontinued operations on the “held for sale” date. We include the component’s operating results from the beginning of the year (or earliest period presented) through the disposal date, and then present them below continuing operations so users can see continuing operations without that component.

       Apply to your numbers (Year 1):

       Segment X operating losses:
       Jan 1–Jun: (110,000)
       Jul 1–Oct 1: (100,000)
       Total pretax loss from operations of discontinued component = (210,000)

       After-tax loss (40% tax rate):
       210,000 × (1 − 0.40) = $126,000

       Loss from discontinued operations (after tax) = ($126,000).

       Hope this helps!