Multi Step Income Statement Discontinued Operations

Compute gross profit.

Multi step income statement discontinued operations. Multi step income statement entities around the world even if they are using different accounting frameworks they use this method to prepare income statement. It represents the after tax gain or loss on sale of a segment of business and the after tax effect of the operations of the discontinued segment for the period. Viacom and simon schuster in the 1990s viacom owner of mtv vh1 and nickelodeon purchased paramount studios. This format coupled with functional basis of classification of expenses is the best available format from understandability point.

A company s income statement summarizes the revenues expenses and profits for an accounting period. Once the non operating section is totaled it is subtracted from or added to the income from operations to compute the net income for the period. The management of the company might shift the expenses from the cost of goods sold and into the operations to improve their margins artificially. View test prep chapter 5 multi step income statement 1 xlsx from accounting 325 at rutgers university.

Let s take a look at a multi step income statement example. A loss on discontinued operations would be reduced by the income tax savings associated with the loss see net of tax. Discontinued operations are listed separately on the income statement because it s important that investors can clearly distinguish the profits and cash flows from continuing operations from those. Net income 3 12 income from operations of discontinued abc division.

Below is a multiple step income statement containing discontinued. A discontinued operation is a separate major business division or geographical operation that the company has disposed of or is holding for sale. Note that even in a single step format shown above the amount of the discontinued operations is separated out and added to the end of the income statement. Section 3 incorporated income statement for the year ended december 31 2016 sales sales.

Multi step income statement format is any day better than a single step statement as it provides proper detailing. The following is a historical example from the dot com era to demonstrate how continuing operations and discontinued operations might arise on the income statement. Income or loss from discontinued operations is a line item on an income statement of a company below income from continuing operations and before net income. As stated earlier in multi step format there are multiple subtotals in the income statement.