PROBLEMS (Part 2)

Problem 33-6 (IAA)

Vernon Company had two operating divisions, one manufacturing farm equipment and

the other office supplies. Both divisions are considered separate components. The farm

equipment component had been unprofitable and on September 1, 2020, the entity

adopted a plan to sell the assets of the division.

The actual sale was effected on December 15, 2020 at a price of P3,000,000. The

carrying amount of the division's assets was P5,000,000.

The farm equipment division incurred before tax operating loss of P1,500,000 from the

beginning of the year through December 15, 2020.

The entity's after-tax income from continuing operations is P9,000,000. The income tax

rate is 30%.

What amount should be reported as net income for the current year?
Problem 33-7 Multiple choice (IFRS)

1. Which criterion does not have to be met in order for an operation to be

classified as discontinued?

a. The operation shall represent a separate major line of business or geographical area

b. The operation is part of a single plan to dispose of a separate major line of business

or geographical area

c. The operation is a subsidiary acquired exclusively with a view to resale.

d. The operation must be sold within three months after the end of reporting period.

2. What is the presentation of the results from discontinued operation in the

income statement?

a. The entity shall disclose a single amount on the face of the income statement below

the income from continuing operations.

b. The amounts from discontinued operations shall be broken down over each category

of revenue and expense.

c. Discontinued operations shall be shown as a movement on retained earnings.

d. Discontinued operations shall be shown as a line item after gross income with the

related tax being shown as part of income tax expense.

3. Which statement is incorrect concerning the presentation of the

discontinued operation in the statement of financial position?

a. Assets of the component held for sale are presented separately under current assets.

b. Assets of the component held for sale are measured at the lower between fair value

less cost of disposal and carrying amount.

c. Liabilities of the component held for sale are presented separately under current

liabilities.

d. Depreciable assets of the component held for sale shall be depreciated.

4. Which is not required for the results of a component of an entity to be

classified as discontinued operations?

a. Management must have entered into a sale agreement.

b. The component is available for immediate sale.

c. The operations and cash flows of the component shall be eliminated from the

operations of the entity as a result of the disposal.

d. The entity shall not have any significant continuing involvement in the operations of

the component after disposal.

5. An entity manufactures and sells household products. The entity

experienced losses associated with the small appliance group. Operations

and cash flows for this group can be clearly distinguished from the rest of

the entity's operations. The entity decided to sell the small appliance group.

What is the earliest point at which the entity shall report the small appliance

group as a discontinued operation?

a. When the entity classifies it as held for sale.

b. When the entity receives an offer for the segment.

c. When the entity first sells any of the assets of the segment.

d. When the entity sells the majority of the assets of the segment.