Question

On Sept. 1, Jacob Furniture Mart agreed to sell the assets of its Office Furniture Division to Albanese Inc. for $24 million. The sale was completed on December 31, 2018.

The following additional facts pertain to the transaction:

• The Office Furniture Division qualifies as a component of the entity according to GAAP regarding discontinued operations.

• The book value of the Division’s assets totaled $19 million on the date of the sale.

• The Division’s operating loss was a pre-tax loss of $3 million in 2018.

• Jacob's income tax rate is 25%.

Required:

1. In the income statement for the year ended December 31, 2018, what would Jacob Furniture Mart report as income/(loss) from discontinued operations?

2. Suppose that the Office Furniture Division's assets had not been sold by December 31, 2018, but were considered held for sale. Assume that the fair value of these assets was $24 million at December 31, 2018. In the income statement for the year ended December 31, 2018, what would Jacob Furniture Mart report as income/(loss) from discontinued operations?

Answer 1

1. In the income statement for the year ended December 31, 2018, what would Jacob Furniture Mart report as income/(loss) from discontinued operations?

ans

Measurement of a non-current asset (or disposal group)

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the

lower of its carrying amount and fair value less costs to sell.

carrying amount = $ 19 mill - $ 3 (100-25)% = $16.75 mill

fair value = $ 24 mill

which ever is lower is carrying amount ie $16.75 mill

therefore Jacob Furniture Mart report as income/(loss) from discontinued operations = $ 24 mill - $ 16.75 mill =$7.25 mill

2. Suppose that the Office Furniture Division's assets had not been sold by December 31, 2018, but were considered held for sale. Assume that the fair value of these assets was $24 million at December 31, 2018. In the income statement for the year ended December 31, 2018, what would Jacob Furniture Mart report as income/(loss) from discontinued operations?

ans

An entity shall disclose:

(a) a single amount in the statement of profit and loss comprising the total of:

(i) the post-tax profit or loss of discontinued operations and

(ii) the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation.

therefore

(a) a single amount in the statement of profit and loss comprising the total of:

(i) the post-tax profit or loss of discontinued operations = (-$ 3 mill)*(100-25)%= -$ 2.25 million

(ii) the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation =( $24 mill - $ 19 mill)*(100-25)%= $ 3.75 mill

hence a single amount in the statement of profit and loss comprising the total of = $3.75 mil - $ 2.25 mil = $ 1.5 mil

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