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In: Accounting
The following condensed statements of profit or loss of the Jackson Holding Company are presented for...
The following condensed statements of profit or loss of the Jackson Holding Company are presented for the two years ended December 31, 2023 and 2022: 2023 2022 Sales $ 15,000,000 $ 9,600,000 Cost of goods sold 9,200,000 6,000,000 Gross profit 5,800,000 3,600,000 Operating expenses 3,200,000 2,600,000 Operating profit 2,600,000 1,000,000 Gain on sale of division 600,000 — 3,200,000 1,000,000 Income tax expense 1,280,000 400,000 Net profit $ 1,920,000 $ 600,000 On October 15, 2023, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by IFRS. The division was sold on December 31, 2023, for $5,000,000. Book value of the division’s assets was $4,400,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows: 2023 $400,000 2022 $300,000 Assume an income tax rate of 20%. Required: (In each case, net any gain or loss on sale of division with annual income or loss from the division and show the tax effect on a separate line.) 1. Prepare revised statements of profit or loss according to IFRS, beginning with profit from continuing operations before income taxes. Ignore EPS disclosures. 2. Assume that by December 31, 2023, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $5,000,000. How would the presentation of discontinued operations be different from your answer to requirement 1? 3. Assume that by December 31, 2023, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $3,900,000. How would the presentation of discontinued operations be different from your answer to requirement 1?
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Expert Solution
| 1 | Jackson Holding Company | ||||
| Statement of Profit and Loss | |||||
| For the year ended 31st December | |||||
| Note | 2022 | 2023 | Working Notes | ||
| a | Profit from continuing operations before income taxes | 2200000 | 700000 | 1.00 | |
| b | Income Taxes | -440000 | -140000 | b x 20% | |
| c | Profit from continuing operations after income taxes | 1760000 | 560000 | a-b | |
| d | Profit (Loss ) from discontinued Operation | 1000000 | 300000 | 2.00 | |
| e | Income Taxes | -200000 | -60000 | d x 20% | |
| f | Profit (Loss ) from discontinued Operation, net of tax | 800000 | 240000 | ||
| Profit | 2560000 | 800000 | c+f | ||
| Working Notes | ||||
| 1 | Profit from continuing operations before income taxes | |||
| Operating Profit before taxes | 2600000 | 1000000 | Given | |
| Less - Divion's contribution to operating income before-tax | -400000 | -300000 | Given | |
| Profit from continuing operations before income taxes | 2200000 | 700000 | ||
| 2 | Profit (Loss ) from discontinued Operation | |||
| Divion's contribution to operating income before-tax | 400000 | 300000 | ||
| Gain on sale of Division | 600000 | 0 | ||
| Profit (Loss ) from discontinued Operation | 1000000 | 300000 |
| 2 | Sale of Division for | ||||
| Statement of Profit and Loss | |||||
| For the year ended 31st December | |||||
| Note | 2022 | 2023 | |||
| Profit from continuing operations before income taxes | 2200000 | 700000 | |||
| Income Taxes | -440000 | -140000 | |||
| Profit from continuing operations after income taxes | 1760000 | 560000 | |||
| Profit (Loss ) from discontinued Operation | 400000 | 300000 | |||
| Income Taxes | -80000 | -60000 | at 20% | ||
| Profit (Loss ) from discontinued Operation, net of tax | 320000 | 240000 | |||
| Profit | 2080000 | 800000 | |||
| As the transfer of division doesn’t take place and the asset is shown as held for sale , the gain on division $600000 has been omitted | |||||
| Assets (or disposal groups) held for sale are not depreciated but are measured at the lower of carrying amount and fair value less costs to sell. | |||||
| The Book value of the asset/ Carrying Value of Division's asset | 44,00,000.00 | ||||
| Which is less than the Fair value given $ 5000000, so no valuation of asset is required. |
| 3 | Assets (or disposal groups) held for sale are not depreciated but are measured at the lower of carrying amount and fair value less costs to sell. | ||||
| The Book value of the asset/ Carrying Value of Division's asset | 44,00,000.00 | ||||
| Which is more than the Fair value given $ 3900000, so valuation of asset is required and there is a impairment of of. | |||||
| 5,00,000.00 | |||||
| Recogonise the same in the Profit and Loss Account | |||||
| Jackson Holding Company | |||||
| Statement of Profit and Loss | |||||
| For the year ended 31st December | |||||
| Note | 2022 | 2023 | |||
| Profit from continuing operations before income taxes | 2200000 | 700000 | |||
| Income Taxes | -440000 | -140000 | |||
| Profit from continuing operations after income taxes | 1760000 | 560000 | |||
| Profit (Loss ) from discontinued Operation | -100000 | 300000 | |||
| Income Taxes ( benefit) | 20000 | -60000 | |||
| Profit (Loss ) from discontinued Operation, net of tax | -80000 | 240000 | |||
| Profit | 1680000 | 800000 | |||
| Profit (Loss ) from discontinued Operation | 2022 | 2023 | |||
| Divion's contribution to operating income before-tax | 400000 | 300000 | |||
| Impairment of Discontining Division's asset | -500000 | 0 | |||
| Profit (Loss ) from discontinued Operation | -100000 | 300000 | |||
.
ekkarill92 answered 1 year agoRelated Solutions
The following condensed income statements of the Jackson Holding Company are presented for the two years...
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020:
2021
2020
Sales revenue
$
16,600,000
$
11,200,000
Cost of goods sold
10,000,000
6,800,000
Gross profit
6,600,000
4,400,000
Operating expenses
3,840,000
3,240,000
Operating income
2,760,000
1,160,000
Gain on sale of division
760,000
—
3,520,000
1,160,000
Income tax expense
880,000
290,000
Net income
$
2,640,000
$
870,000
On October 15, 2021, Jackson entered into a tentative agreement to
sell...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020:
2021
2020
Sales revenue
$
15,700,000
$
10,300,000
Cost of goods sold
9,550,000
6,350,000
Gross profit
6,150,000
3,950,000
Operating expenses
3,480,000
2,880,000
Operating income
2,670,000
1,070,000
Gain on sale of division
670,000
—
3,340,000
1,070,000
Income tax expense
835,000
267,500
Net income
$
2,505,000
$
802,500
On October 15, 2021, Jackson entered into a tentative agreement to
sell...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020:
2021
2020
Sales revenue
$
16,600,000
$
11,200,000
Cost of goods sold
10,000,000
6,800,000
Gross profit
6,600,000
4,400,000
Operating expenses
3,840,000
3,240,000
Operating income
2,760,000
1,160,000
Gain on sale of division
760,000
—
3,520,000
1,160,000
Income tax expense
880,000
290,000
Net income
$
2,640,000
$
870,000
On October 15, 2021, Jackson entered into a tentative agreement to
sell...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
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
$
16,800,000
$
11,400,000
Cost of goods sold
10,100,000
6,900,000
Gross profit
6,700,000
4,500,000
Operating expenses
3,920,000
3,320,000
Operating income
2,780,000
1,180,000
Gain on sale of division
780,000
—
3,560,000
1,180,000
Income tax expense
1,424,000
472,000
Net income
$
2,136,000
$
708,000
On October 15, 2018, Jackson entered into a tentative agreement to
sell the...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
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
$
16,800,000
$
11,400,000
Cost of goods sold
10,100,000
6,900,000
Gross profit
6,700,000
4,500,000
Operating expenses
3,920,000
3,320,000
Operating income
2,780,000
1,180,000
Gain on sale of division
780,000
—
3,560,000
1,180,000
Income tax expense
1,424,000
472,000
Net income
$
2,136,000
$
708,000
On October 15, 2018, Jackson entered into a tentative agreement to
sell the...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
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
$
16,800,000
$
11,400,000
Cost of goods sold
10,100,000
6,900,000
Gross profit
6,700,000
4,500,000
Operating expenses
3,920,000
3,320,000
Operating income
2,780,000
1,180,000
Gain on sale of division
780,000
—
3,560,000
1,180,000
Income tax expense
1,424,000
472,000
Net income
$
2,136,000
$
708,000
On October 15, 2018, Jackson entered into a tentative agreement to
sell the...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020:
2021
2020
Sales revenue
$
15,900,000
$
10,500,000
Cost of goods sold
9,650,000
6,450,000
Gross profit
6,250,000
4,050,000
Operating expenses
3,560,000
2,960,000
Operating income
2,690,000
1,090,000
Gain on sale of division
690,000
—
3,380,000
1,090,000
Income tax expense
845,000
272,500
Net income
$
2,535,000
$
817,500
On October 15, 2021, Jackson entered into a tentative agreement to
sell...
The following condensed income statements of the Jackson Holding Company are presented for the two years...
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
$
17,000,000
$
11,600,000
Cost of goods sold
10,200,000
7,000,000
Gross profit
6,800,000
4,600,000
Operating expenses
4,000,000
3,400,000
Operating income
2,800,000
1,200,000
Gain on sale of division
800,000
—
3,600,000
1,200,000
Income tax expense
1,080,000
360,000
Net income
$
2,520,000
$
840,000
On October 15, 2018, Jackson entered into a tentative agreement to
sell the...
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020:
The following condensed income statements of the Jackson Holding
Company are presented for the two years ended December 31, 2021 and
2020: 2021 2020 Sales revenue $ 16,800,000 $ 11,400,000 Cost of
goods sold 10,100,000 6,900,000 Gross profit 6,700,000 4,500,000
Operating expenses 3,920,000 3,320,000 Operating income 2,780,000
1,180,000 Gain on sale of division 780,000 — 3,560,000 1,180,000
Income tax expense 890,000 295,000 Net income $ 2,670,000 $ 885,000
On October 15, 2021, Jackson entered into a tentative agreement to
sell...
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020:
The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020:
On October 15, 2021, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2021, for $5,000,000. Book value of the division’s assets was $4,400,000. The division’s contribution to Jackson’s operating income before-tax...
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