Discontinued operations are segments or portions of a business that a company chooses to abandon from its operations. An entity must first classify its operations as ‘held for sale’, and eliminate all significant involvement from its ongoing operations. Both US GAAP and IFRS require the recognition of some disposal costs related to discontinued operations. Costs that should be recognized are costs associated with involuntary termination benefits, costs to terminate operating leases, and relocation of employees. All gains/losses and impairment gains and losses that stem from discontinued operations are reported on the income statement (net of tax).
Example:
An example of “discontinued operations" is if Adequate Disclosure, Inc. discontinued its tax practice. In order for Adequate Disclosure, Inc. to report this segment as a "discontinued operations" it must classify it as a 'held for sale' component. In order for Adequate Disclosure, Inc. to classify this component as a 'held for sale' component; Adequate Disclosure, Inc. must eliminate it from its ongoing operations and must discontinue all significant involvement of the component. Adequate Disclosure must report all costs related to the disposal of its tax practice, such as costs regarding relocation of employees and termination benefits.