Question

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?

Answer 1

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

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