What is recorded when a company closes down or sells part of its business?

When a company closes down or sells part of its business, the transactions associated with those decisions are classified as discontinued operations. This classification is significant because it allows investors and analysts to separately identify the financial effects of decisions that significantly alter the scope of a company’s ongoing activities.

Discontinued operations are reported separately in the income statement, which improves the clarity of financial reporting. By distinguishing these activities, stakeholders can better assess the company's continuing operations without being influenced by results from components that are no longer part of the business. This can include gains or losses from the sale, as well as the operational results leading up to the decision to discontinue or sell the parts of the business. Reporting these items separately allows for a clearer evaluation of the remaining operations' performance.

The other choices do not accurately reflect the financial reporting mechanism for a business that is closing or selling part of its operations. Extraordinary items, for instance, refers to events that are both unusual and infrequent, which do not encompass regular business divestitures. Impairment losses relate to the carrying value of assets on the balance sheet that need to be written down, not specifically tied to the disposal of a business segment. Operating income, meanwhile, reflects the profit made from core business operations, excluding any effects