How to Calculate Income From Operations of Discontinued Components

When a company sells or decides to sell a business component or unit, it reports the income or loss from the operations of the unit separate from its other operations on its income statement. This shows financial statement users that this income will no longer be a part of the company's continuing operations. The unit the company is selling is called discontinued operations and must be a unit that is clearly distinguishable from its other business operations, such as a food manufacturer selling its vitamin sales business. You can calculate the income from discontinued operations using a company's income statement.

Step 1

Find a public company's income statement in its 10-Q quarterly filing or in its 10-K annual filing. You can get these filings from the U.S. Securities and Exchange Commission's online EDGAR website or from the investor relations section of the company's website.

Step 2

Look for the section called "Discontinued Operations" on the income statement.

Step 3

Identify the amounts of the line items called "Income (Loss) from Operations of Discontinued Business Component," "Income Tax Benefit (Expense)," "Gain (Loss) on Sale of Discontinued Business Component" and "Income Tax Benefit (Expense) on Sale." The income statement shows loss and expense amounts in parentheses. A company may show some of these amounts in the footnotes to the income statement. For example, assume a company has $50,000 in income from operations of a discontinued component, $10,000 in income tax expense, a $40,000 gain on the sale of the discontinued component and $5,000 in income tax expense on the sale.

Step 4

Add the income or loss from operations and the income tax benefit or expense together to calculate income from discontinued operations, net of taxes. Treat expenses and losses as negative numbers. In this example, add $50,000 in income and the -$10,000 tax expense to get $40,000 in income from discontinued operations, net of taxes.

Step 5

Add the gain or loss on the sale of the discontinued component and the income tax benefit or expense on the sale together to calculate the gain or loss on sale, net of taxes. Treat losses and expenses as negative numbers. In this example, add the $40,000 gain on sale and the -$5,000 tax expense to get a $35,000 gain on sale, net of taxes.

Step 6

Add together the income from discontinued operations, net of taxes, and the gain on sale, net of taxes, to calculate the total income from discontinued operations, net of taxes. In this example, add $40,000 and $35,000 to get $75,000 in total income from discontinued operations, net of taxes.

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