What Was Last Year’s Income?
Walesco Corporation has decided to discontinue an entire component of its business effective November 1, 2008. It hopes to sell the assets involved and convert the physical plant to other uses within the manufacturing division. The CPA auditing the books indicates that GAAP requires separate identification of the revenues and expenses related to the component to be sold and their removal from the continuing revenue and expense amounts. The controller objects to this change. “We have already distributed last year’s numbers. If we change them now, one year later, confidence in our financial statements will be greatly eroded.” What are the pros and cons of identifying separately the costs related to the discontinued component?