Accounting Dictionary

Discontinued Operations

When a division of a company is sold or shut down, that section of the business is a discontinued operation.

Let’s say a candy company in a 35% tax bracket buys a bakery. Then they find out they can’t cook and the bakery is going bankrupt. After a $60,000 loss, they shut down the bakery. The bakery would be a discontinued operation. Because the loss is a tax deduction, the net of tax loss would be $39,000. $60,000 loss + $21,000 tax refund ($60,000 x .35% = $21,000) = actual out of pocket loss of $39,000. The net of tax discontinued loss of $39,000 would be listed separately towards the bottom of the income statement.

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