Academic journal article Journal of the International Academy for Case Studies

Organic Foods: The Financial Reporting of Discontinued operations.(Instructor's Note)

Academic journal article Journal of the International Academy for Case Studies

Organic Foods: The Financial Reporting of Discontinued operations.(Instructor's Note)

Article excerpt


The primary subject manner of this case concerns the proper financial reporting of gains or losses on discontinued operations per Generally Accepted Accounting Principles (GAAP). This case has a difficulty level of three, appropriate for junior level courses. The case is designed to be taught in a one class hour and is expected to require three to four hours of outside preparation by students. The case would be appropriate for an undergraduate intermediate accounting course or graduate courses in either financial accounting theory or applied financial accounting research. Students will need access to Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Asset" and APB #30. These standards can be downloaded from the Financial Accounting Standards Board (FASB) web site at or can be found on the Financial Accounting Research System disk that may be packaged with Intermediate Accounting or other advanced financial accounting textbooks.


This case provides students the opportunity to apply a financial reporting standard to a real-world situation where there is uncertainty about the proper reporting of restructuring costs. Specifically, Organic Foods, a publicly owned organic food retailing chain, is restructuring parts of its business and management is hoping to report all the related costs in a discontinued operations section at the bottom of their Income Statement. Financial analysts often spend very little time evaluating the discontinued operations section since it is not considered part of income from operations and usually includes only non-recurring disposal costs. For this reason, company managements have been known to pressure their accountants to include inappropriate costs in discontinued operations rather than reporting them as operations related expenses.

The case requirements have been separated into two parts--Part A and Part B. Instructors can choose to have students complete Part A only or both Part A and Part B. In Part A, students: 1) read and interpret FAS #144 to determine the GAAP requirements for discontinued operations, and 2) apply those requirements to Organic Food's restructuring costs. However, Part A does not require the actual completion of any financial statements. Instead, Part A focuses on understanding the appropriate accounting for Organic's restructuring costs without getting into the computational details of preparing Comparative Income Statements.

Part B provides financial information and requires students to complete Comparative Income Statements based on the decisions they made in Part A. In addition, Part B requires students to discuss the impact of the required financial reporting on management and shareholder decision making. Overall, the case provides students the ability to develop skills they will need to understand and apply FASB based financial reporting standards to uncertain situations.


This case examines the financial reporting requirements for discontinued operations. The case is designed primarily for intermediate accounting or graduate accounting students. For intermediate accounting classes, the case would best be used as a supplement to the property, plant, and equipment chapter. Prior to beginning the case, students will need to acquire FAS #144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and APB #30 from the FASB web site ( or from other sources. In addition, students should be told to concentrate on the FAS #144 sections that relate to discontinued operations (i.e., FAS #144, para. 41-44 and FAS #144, Appendix A, para. A24-A31).

The case requirements are divided into two parts--Part A and Part B. Instructors may assign Part A only or both Part A and Part B, depending on the depth of analysis desired.

Part A: The Financial Reporting Research Issue, may be assigned without Part B if instructors want students to apply the discontinued operations reporting requirements to the case situation without actually preparing the related Comparative Income Statements. …

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