IFRS 5 – NCA Held for Sale and Discontinued Operations – Applied – 1

In February 20X4, Walley Corp decided to sell it’s entire Plant division. The Plant division was a major part of Walley Corp’s business and the sale will result in a strategic change in direction for the company.

The sale was completed in January 20X5 and resulted in a gain on disposal of €500,000. In 20X4 Plant’s net losses were €350,000 and €20,000 in 20X5 up until the date of sale.

Excluding taxation, what should the net gain/(loss) to be reported in the income statements of Walley Corp for its Plant division?

In October 20X1, the board of Victor plc confirmed their plan to discontinue operations of its Edward Ltd. division. The Edward division is a major part of the overall Victor plc group. Victor plc forecasts the losses incurred by Edward Ltd. would be €200,000 and the fair value of Edward Ltd’s asses were €300,000 less than the carrying amount.

During 20X2 Edward Ltd. lost €200,000 and was eventually sold for €450,000 less than its carrying value.

What amount should be reported by Victor plc as its loss from discontinued operations in 20X2? Use an effective tax rate of 20%.

Lewis Inc. designs and manufactures electronic components. Its capacitor business has been loss-making for a number of years. The capacitor business is run as a separate division and produces its own segmented financial statements. Lewis Inc. plans to sell the capacitor business and operations.

What is the earliest date Lewis Inc. should recognise the capacitor business as a discontinued operation?

Which of the following meets the definition of a discontinued operation?

On 1 September 20X5, Jimbo plc agreed to sell its lossmaking construction division and the requirements to classify this as a discontinued operation were met. The division was loss making for the past 4 years and is expected to continue to lose money until sold.

How much of the divisions operating losses will be recognised as a loss from discontinued operation in Jimbo plc’s 20X5 financial statements?

Jorge Limited decides to sell is unprofitable car dealership business. The company expects to sell the division for $1,400,000 and the buyer has agreed to assume all assets and liabilities. If the tax rate is 30%, what is the after tax gain/(loss) on disposal of the business?

In August 20X8, Winky’s board of directors approved a plan to dispose of one of its major operating segments. Winky expects the sale will take place in early 20X9 and will gain $200,000 on the sale.

The segments operating losses were as follows:
January – July 20X8 ($150,000)
August – December 20X8 ($75,000)
January – February 20X9 (date of sale) ($60,000)

What is the loss from discontinued operations Winky should report in its income statement in 20X8? Ignore taxation.

In July 20X3, Mullet Corp disposed of a major component of its business. During the period January – July 20X3, the division reported the following results:
Sales $1,300,000
Expenses $1,450,000

What is the correct treatment of Mullet Corp’s discontinued operations in 20X3? Ignore taxation.

In November 20X1, Brian’s Beans Inc’s board of directors voted to discontinue its loss making quinoa division and focus its efforts on the core bean division. The division was placed on the market and a buyer was found quickly. In 20X1 the quinoa division lost €50,000 since the board voted to sell. In January and February 20X2 the division lost a further €75,000. On February 28 a local competitor bought the division which resulted in a gain of €200,000 for Brian’s Beans.

Ignoring tax, what is the amount Brian’s Beans Inc. should report in statement of comprehensive income for 20X2 for gain/loss from discontinued operations?

Fizzy Pop Ltd. recently bought a new bottling machine and has decommissioned the old bottling machine and advertised it for sale. The CFO is confident a sale will be completed within 3-4 months and a buyer will be found for the market value of the machinery.

Which of the following is not true regarding the bottling machine?