Chapter 4

Non-current assets Held for Sale and

Discontinued Operations

PROBLEM 1: TRUE OR FALSE

1. FALSE 6. TRUE
2. TRUE 7. FALSE
3. TRUE 8. TRUE
4. TRUE 9. TRUE
5. FALSE 10. TRUE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. B

2. D

3. B

4. A

5. D

6. D

7. C

8. A

9. D

10. B

11. C [1M C.A. – (800K FV – 50K costs to sell)] = 250K Impairment loss

12. Solution:
Dec. Impairment loss 250,000
31, 750,000
Machinery – held for sale
20x1 2,000,000
Accumulated depreciation
Machinery 3,000,000

13. B [750K C.A. – (700K FV – 50K costs to sell)] = 100K Impairment loss

14. Solution:

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Dec. Impairment loss 100,000
31, Machinery – held for sale 100,000
20x2

15. B Gain is recognized only up to the cumulative losses recognized (i.e.,

250K + 100K = 350K). (650K C.A. + 350K gain = 1M new C.A.).

16. Solution:
Dec. Machinery – held for sale 350,000
31, 350,000
Gain on impairment
20x3
recovery

17. A
Solution:
C.A. adjusted for depreciation not recognized:
(1M C.A. on Dec. 31, 20x1 x 2/5*) = 400,000
Recoverable amount: (1M FV – 50K costs to sell) = 950,000
Lower amount = 400,000

*(5-yr. total life less 3 yrs. that have passed from 20x2 to 20x4) = 2 yrs.

18. Solution:
Dec. Machinery 400,000
31, 600,000
Loss on reclassification
20x4 1,000,000
Machinery – held for sale

19. D
Solution:
Impairment loss [1M - (600K - 50K)] (450,000)
Profit from Jan. to Mar. 200,000
Loss from Apr. to Dec. (120,000)
Total (370,000)
Multiply by: (100% - 30%) 70%
Results of discontinued operations (259,000)

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PROBLEM 3: EXERCISES

1. Solution:
Dec. Impairment loss [8M – (7M – 200K)] 1,200,000
31, 6,800,000
Building – held for sale
20x1 12,000,000
Accumulated depreciation
Building 20,000,00
0
Dec. Impairment loss [6.8M – (6.8M – 200,000
31, 200K)] 200,000
20x2 Building – held for sale
Dec. Building – held for sale 1,400,000
31, 1,400,000
Gain on impairment
20x3
recovery
Dec. Building 5,000,000
31, 3,000,000
Loss on reclassification
20x4 8,000,000
Building – held for sale

Carrying amount adjusted for depreciation not recognized:

(8M x 5/8) = 5,000,000
Recoverable amount: (9M – 200K) = 8.8M
Lower amount = 5,000,000

2. Solution:
ASSSETS
Current assets:
Cash and cash equivalents
600,000
1,200,00
Trade and other receivables
0
3,600,00
Inventories
0

5,400,000
1,400,00
Noncurrent asset classified as held for sale
0

Total current assets 6,800,000

Noncurrent assets:
800,00
Investment in associate
0
Property, plant and equipment
5,000,000
Total noncurrent assets
5,800,000

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TOTAL ASSETS 12,600,000

LIABILITIES AND EQUITY

Current liabilities:
4,900,00
Trade and other payables
0
1,800,00
Current tax payable
0

Total current liabilities 6,700,000

Noncurrent liabilities:
700,00
Deferred tax liability
0

TOTAL LIABILITIES 7,400,000

Ordinary share capital 2,000,000

2,700,00
Retained earnings
0
500,00
Other components of equity
0

TOTAL EQUITY 5,200,000

12,600,00
TOTAL LIABILITIES & EQUITY
0

3. Solution:

ASSSETS
Current assets:
Cash and cash equivalents 1,500,000
Trade and other receivables 2,800,000
Inventories 8,440,000
12,740,00
0
Noncurrent asset classified as held for sale(1) 2,360,000
15,100,00
Total current assets 0

Noncurrent assets:
Investment property 3,500,000
Investment in associate 2,000,000
Property, plant and equipment 9,700,000
Total noncurrent assets 15,200,00

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 0

30,300,00
TOTAL ASSETS 0

LIABILITIES AND EQUITY

Current liabilities:
Trade and other payables 11,890,000
Current tax payable 4,500,000
16,390,000
Liabilities directly associated with noncurrent assets held for
360,000
sale
16,750,00
Total current liabilities 0

Noncurrent liabilities:
Deferred tax liability 1,750,000

18,500,00
TOTAL LIABILITIES 0

Ordinary share capital 5,000,000

Retained earnings (6.75M – 1.2M impairment loss) 5,550,000
Other components of equity 1,250,000
11,800,00
TOTAL EQUITY 0

30,300,00
TOTAL LIABILITIES & EQUITY
0

(1)
(1.6M equipment at FVLCS + 200K receivable + 560K inventory) = 2.360M

Revenue 5,600,000

Cost of sales (2,000,000)

Gross profit 3,600,000

Distribution costs (780,000)

Administrative expenses (900,000)

Impairment loss on assets held for sale (2.8M – 1.6M) (1,200,000)

Finance costs (300,000)

Share of profit of associates 240,000
Profit for the year

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 660,000

4. Solution:
Revenue (2M + 2.4M) 4,400,000
Cost of goods sold (800K + 960K) (1,760,000)
Gross profit 2,640,000
Distribution costs (300K + 360K) (660,000)
Administrative expenses (150K + 180K) (330,000)
Profit before tax 1,650,000
Income tax expense (1.650M x 30%) (495,000)
Profit from continuing operations 1,155,000
Loss from discontinued operations (1) (735,000)
Profit for the year 420,000

(1)

Loss from operations (50,000)

Impairment loss (6M - 5M) (1,000,000)
Total before tax (1,050,000)
Income tax benefit (1.050M x 30%) 315,000
Loss from discontinued operations (735,000)

5. Solutions:
ASSSETS
Current assets:
Cash and cash equivalents 1,800,000
Trade and other receivables 3,360,000
Inventories 10,128,000
15,288,000
Noncurrent asset classified as held for sale
2,512,000
(240K + 672K + 1.6M)
Total current assets 17,800,000
Noncurrent assets:
Investment property 4,200,000
Investment in associate 2,400,000
Property, plant and equipment 11,640,000
Total noncurrent assets 18,240,000
TOTAL ASSETS 36,040,000
LIABILITIES AND EQUITY
Current liabilities:
Trade and other payables 14,268,000
Current tax payable 5,400,000
19,668,000
Liabilities directly associated with noncurrent assets held for
432,000
sale
Total current liabilities 20,100,000
Noncurrent liabilities:

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 Deferred tax liability 2,100,000
TOTAL LIABILITIES 22,200,000
Ordinary share capital 6,000,000
Retained earnings (8.1M – 1.76M impairment loss) 6,340,000
Other components of equity 1,500,000
TOTAL EQUITY 13,840,000
TOTAL LIABILITIES & EQUITY 36,040,000

Revenue 4,720,000

Cost of sales (1,200,000)

Gross profit 3,520,000

Distribution costs (656,000)

Administrative expenses (648,000)

Finance costs (360,000)

Share of profit of associates 288,000
Profit from continuing operations 2,144,000

Loss from discontinued operations (1) (1,672,000)

Profit for the year 472,000

(1)

Profit from operations (2M – 1.2M – 280K – 432K) 88,000

Impairment loss (3.36M – 1.6M) (1,760,000)

Loss from discontinued operations (1,672,000)

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PROBLEM 4: MULTIPLE CHOICE – THEORY

1. D 6. C
2. D 7. B
3. C 8. C
4. A 9. B
5. C 10. B

PROBLEM 5: MULTIPLE CHOICE – COMPUTATIONAL

1. A

Solution:
Cash (-10,000 + 30,000) 20,000
Accounts receivable, net 35,000
Inventory 58,000
Prepaid expenses 12,000
Non-current assets classified as held for sale 100,000
Total current assets 225,000

2. D
Solution:
C.A. of building 12/31/x1 = 12M x 4/5 = 9.6M
FV less costs to sell = (8M – 100K) = 7.9M
Lower amount = 7.9M

3. C
Solution:
C.A. of building 12/31/x1 = 12M x 4/5 = 9.6M
FV less costs to sell = (8M – 100K) = 7.9M
Impairment loss = (9.6M – 7.9M) = 1.7M

4. D

Solution:

Impairment loss (6.5M - 8M) (1,500,000)

Loss during the 20x3 (2,000,000)

Loss from discontinued operations (3,500,000)

5. D

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Solution:

Estimated loss on sale (700,000)

Loss during the 20x3 (200,000)

Loss from discontinued operations (900,000)

6. A (400,000 + 1,000,000) = 1,400,000 loss from discontinued

operations

7. C

Solution:

Profit from Jan. to April 20x5 150,000

Loss from May to Dec. 20x5 (50,000)

Actual gain on sale - Dec. 20x5 100,000

Profit from discontinued operations 200,000

8. C

Solution:
20x5 20x4
Actual operating losses (300,000) (300,000)
Actual gain on sale 650,000

Results of discontinued operations 350,000 (300,000)

9. A 480,000 including all of the items stated in the problem +

120,000 = 600,000

10. C
Solution:

Profit for the period from discontinued operations 50,000

Foreign currency translation gain 100,000
Profit for the year 400,000
Unrealized gain on FVOCI equity securities
20,000

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Total comprehensive income 570,000

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