REPORTING FINANCIAL PERFORMANCE

The following are Partway's summarized profit or loss results – years ended:
31 October 20X6 31 October 20X5
Internet Travel agencies Car hire Total Total
$'000 $'000 $'000 $'000 $'000
Revenue 23,000 14,000 2,000 39,000 40,000
Cost of sales (18,000) (16,500) (1,500) (36,000) (32,000)
Gross profit/(loss) 5,000 (2,500) 500 3,000 8,000
Operating expenses (1,000) (1,500) (100) (2,600) (2,000)
Profit/(loss) before tax 4,000 (4,000) 400 400 6,000
The results for the travel agencies for the year ended 31 October 20X5 were: revenue $18 million, cost
of sales $15 million and operating expenses of $1.5 million.
Required
(i) Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation
is justifiable.
(ii) Assuming the closure of the travel agencies is a discontinued operation, prepare the (summarized)
statement of profit or loss of Partway for the year ended 31 October 20X6 together with its
comparatives.
(b) (i) Describe the circumstances in which an entity may change its accounting policies and how a
change should be applied.
The terms under which Partway sells its holidays are that a 10% deposit is required on booking and the
balance of the holiday must be paid six weeks before the travel date. In previous years Partway has
recognized revenue (and profit) from the sale of its holidays at the date the holiday is actually taken.
From the beginning of November 20X5, Partway has made it a condition of booking that all customers
must have holiday cancellation insurance and as a result it is unlikely that the outstanding balance of
any holidays will be unpaid due to cancellation. In preparing its financial statements to 31 October
20X6, the directors are proposing to change to recognizing revenue (and related estimated costs) at the
date when a booking is made. The directors also feel that this change will help to negate the adverse
effect of comparison with last year's results (year ended 31 October 20X5) which were better than the
current year's.
Required
(ii) Comment on whether Partway's proposal to change the timing of its recognition of its revenue is
acceptable and whether this would be a change of accounting policy.