Final answer:
The claim that elimination of a business component for discontinued operations need not represent a strategic shift is false. Discontinued operations must involve a significant change affecting the company's operations and financial results, necessary when long-term profitability cannot be sustained.
Step-by-step explanation:
The statement is false. Discontinued operations occur when a company eliminates the results of operations of a component of its business, and this action must represent a strategic shift that has a major effect on the company's operations and financial results. According to accounting standards, the elimination of a component involves the disposal of said component through sale, abandonment, or other forms of elimination. Additionally, the aspect of a strategic shift implies that the discontinued operation should have a significant impact on the company's financial results, operations, or both, which means that minor changes do not typically qualify as discontinued operations.
Firms face the decision to exit a market or discontinue operations based on long-term profitability. Losses that persist over time often lead to a firm's exit, which is a sobering outcome involving job losses and financial harm to stakeholders. Yet, from an economic standpoint, the exit of non-profitable businesses can be a necessary adjustment for the market to ensure resources are allocated efficiently, customer needs are met, costs are minimized, and innovation thrives.