Should the following be classified as held for sale or discontinued operations? Explain your rationale in...

Should the following be classified as held for sale or discontinued operations? Explain your rationale in detail.

a) Dark Ltd is committed to a plan to sell its staff quarters in Ho Man Tin and has engaged a property agent to locate a buyer. Dark Ltd’s employees will use the Ho Man Tin staff quarters until the completion of the new staff quarters in Kowloon Bay in six months’ time. The Ho Man Tin staff quarters can be transferred to the buyer when all employees move out.

b) Dark Ltd has been using two factories to manufacture traditional light bulbs. An increasing demand for LED lights has caused a significant drop in sales of the light bulbs. Dark Ltd has decided to move all the production facilities to one of the factories but keep the empty factory in the hope that the demand for traditional light bulbs may go back up in the near future

Solutions

Expert Solution

Discontinued Operations :

It is the business operation or segment of an entity which is being disposed off pursuant to a single plan Completely or in Installments or Terminated. The segment is an identifiable segment and can be used for the purpose of reporting in individual capacity with in sepearte line of opeartions or geographical area.

There are many activities which are not disposed off but are considered to be Discontinued Operations , such as :-

- shifiting of promotional activities to other activities.

- decline in the production of one product / product class

- temporarily closure to any product / product class/product .

- shut down of factory/entuty for the purpose of Improvement.

In the given question,

A) It can be classified as held for sale :

Darl LTD. has a plan to sell the staff quaters with in a period of 6 months. There is an active involvement by the management to locate the intended buyer and has taken services of an agent with the intension to disposed off with minimum restrictions.Tthe staff Quaters will be vacated with in 6months till the completion of new staff quater. It can disposed completely or in installments.

B) It can be classified as Discontinued Operation:

As mentioned above, Drak ltd has 2 factories for manaufacturing light bulbs. Temporarily closure to one of the factory by Drak ltd and moving off all the production factory is deemed to be discontinued operation. Shuting down of the factory and moving of operations to one location is termed as discontinued operation. The other factory has kept close keeping in mind that the demand might go up in near future.

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

QUESTION 1 The objective of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations specifies,...

QUESTION 1 The objective of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations specifies, amongst other things, accounting for and presentation and disclosure of discontinued operations. Radar’s sole activity is the operation of hotels all over the world. After a period of declining profitability, Radar’s directors made the following decisions during the year ended 31 December 2019: • it disposed of all of its hotels in country A • it refurbished all of its hotels in country B...

A non current asset is classified as held for sale. On the date of classification, immediately...

A non current asset is classified as held for sale. On the date of classification, immediately prior to the transfer to the 'held for sale' classification, the asset had: a cost of $100 000, accumulated depreciation of $40 000(10% per annum, straight line over 4 years); and accumulated impairment losses in terms of IAS 36 of $15 000. The asset was then impaired in terms of IFRS 5 by $10 000. Asume that the above asset had not yet been...

A non current asset is classified as held for sale. On the date of classification, immediately...

Explain what constitutes discontinued operations and provide an example.

Discontinued operations should be shown on the statement of retained earnings net of taxes. a. True...

Discontinued operations should be shown on the statement of retained earnings net of taxes. a. True b. False

4) Which of the following investment securities held by Zoogle Inc. may be classified as held-to-...

4) Which of the following investment securities held by Zoogle Inc. may be classified as held-to- maturity securities in its balance sheet? A) Long-term debenture bonds B) Common stock. C) Callable preferred stock D) All of these answer choices are correct. 5) Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet? A) Debt securities held as available for sale securities. B) Debt securities held to maturity C) Bonds...

Shortly define discontinued operations and explain how they are reported according to U.S. GAAP

In the estimation of value process, which of the following are true concerning discontinued operations? I.The...

In the estimation of value process, which of the following are true concerning discontinued operations? I.The earnings from discontinued operations are explicitly shown in the income statement. II.The netassetpositionofdiscontinuedoperations isdisclosedonthe balancesheet. Ill. For an outside analyst, the most recent book value usually serves as a good estimate of the value of discontinued operations. iv.The value of discontinued operations should be modeled as part of free cash flow or included inthe DCF value of operations. a. I, II, and Ill only....

Identify each of the following statements as true or false. 1. ASPE and IFRS both require comprehensive income. 2. Held-for-sale assets are classified as current assets in ASPE and noncurrent assets in IFRS.

Identify each of the following statements as true or false.1. ASPE and IFRS both require comprehensive income.2. Held-for-sale assets are classified as current assets in ASPE and noncurrent assets in IFRS.3. Both ASPE and IFRS may have non-controlling interest.4. Private companies are required to provide EPS calculations.5. Both ASPE and IFRS require a subtotal for net income or loss before discontinued operations.

Problem 4-2 Discontinued operations [LO4-4] The following condensed income statements of the Jackson Holding Company are...

Problem 4-2 Discontinued operations [LO4-4] The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2018 and 2017: 2018 2017 Sales $ 15,300,000 $ 9,900,000 Cost of goods sold 9,350,000 6,150,000 Gross profit 5,950,000 3,750,000 Operating expenses 3,320,000 2,720,000 Operating income 2,630,000 1,030,000 Gain on sale of division 630,000 — 3,260,000 1,030,000 Income tax expense 652,000 206,000 Net income $ 2,608,000 $ 824,000 On October 15, 2018, Jackson entered into a...

Subjects