On November I 2013 Campbell Corporation management

decided to discontinue #1865

On November I, 2013, Campbell Corporation management decided to discontinue operation of
its RocketeerDivision and approved a formal plan to dispose of the division. Campbell is a
successful corporation with earnings of $150 million or more before tax for each of the past five
years. The Rocketeer Division, a major part of Campbell operations, is being discontinued
because it has not contributed to this profitable performance.The division's main assets are the
land, building, and equipment used to manufacture engine components. The land, building, and
equipment had a net book value ofS96 million on November I, 2013.Campbell's management
has entered into negotiations for a cash sale of the division for S87 million (net of costs to sell).
The expected sale date and final disposal date of the division is expected to be July I, 2014.
Campbell Corporation has a fiscal year ending May 31. The results of operations for the
Rocketeer Division for the 2013-14 fiscal year and the estimated results for June 2014 are
presented below. The before-tax losses after October 31,2013, are calculated without
depreciation on the building and equipment.The Rocketeer Division will be accounted for as a
discontinued operation on Campbell; financial statements for the year ended May 31, 2014.
Campbell's tax rate is 25% on operating income and all gains and losses. Campbell prepares
financial statements in accordance with IFRS.Instructions(a) Explain how the Rocketeer
Division's assets would be reported on Campbell Corporation's balance sheet as at May
31,2014.(b) Explain how the discontinued operations and pending sale of the Rocketeer
Division would be reported onCampbell Corporation's income statement for the year ended May
31, 2014.(c) On July 5, 2014, Campbell Corporation disposes of the division assets at an
adjusted price ofS84 million. Explain how the discontinued operations and sale of the Rocketeer
Division would be reported on Campbell Corporation's income statement for the year ended
May 31, 2015. Assume the June 2014 operating loss is the same as estimated.(d) Assume that
Campbell Corporation management was debating whether the sale of the Rocketeer Division
qualified for discontinued operations accounting treatment under IFRS. List specific factors or
arguments that management would use to suggest that the Rocketeer Division should be
treated as a discontinued operation. Why might management have a particular preference
about which treatment is given? From an external user's perspective,what relevance does the
presentation of the discontinued operation have when interpreting the financial results? View
Solution:
On November I 2013 Campbell Corporation management decided to discontinue

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