Question

Black Media Inc. owns and operates a large number of newspapers across Canada. On 1 October 20X5, the board of directors voted unanimously to dispose of one of those newspapers, The Daily Con. Black Media would continue to publish The Daily Con while a buyer was being sought. As Black Media was facing some financial problems, the board hoped for a quick sale. The newspaper was Black Media’s sole holding in that city, and thus the newspaper’s assets and liabilities could easily be transferred to a new owner. The board authorized an immediate search for possible buyers, and the company received several indications of interest by the end of 20X5. The net assets of The Daily Con can be summarized as follows:

 

REQUIRED:

1. Does the potential sale of The Daily Con qualify for treatment as a disposal group? Explain.

2. Give the appropriate entry or entries pertaining to The Daily Con on 1 October 20X5.

3. Assume that there is no change in recoverable amounts between 1 October and 31 December 20X5. Show how the year end 20X5 SFP and SCI will be affected by the decision to sell The Daily Con.

Answer 1

Requirement 1

This qualifies as an asset group available for immediate sale for financial reporting purposes. The assets (and liability) were put on the market and offers actively solicited, the intent is to complete the sale within one year, management is committed to selling the asset(s), and it is highly unlikely that the offer to sell will be withdrawn.

 

Requirement 2

 

The individual assets must be written down to recoverable value of each (i.e., not to the total recoverable value of the group):

 

Loss from writedown of The Daily Con assets		175,000
	Accounts receivable – Daily Con		5,000
	Inventory – Daily Con		10,000
	Motor vehicles – Daily Con		150,000
	Equipment and furnishings – Daily Con		10,000

 

Requirement 3

 

Statement of financial position:

 

      Current assets:

            Assets held for sale – The Daily Con (see below)                     $910,000 Dr.*

 

      Current liabilities:

            Accounts payable – The Daily Con                                          $ 60,000 Cr.

 

Statement of Comprehensive Income:

 

      Net income section:

            Loss on writedown of Daily Con assets                                 $ 175,000 Dr.

 

* 31 December 20X5 reported asset value:
Total net book value at 30 September 20X5	$ 1,025,000
Plus liability – account payable	+60,000
B/V of Daily Con assets	1,085,000
Writedown of impaired assets	–175,000
Ending carrying value	$ 910,000

 

Note that the year-end carrying value of the assets is less than the $1,005,000 shown in the problem because the writedown occurred only for those assets for which the recoverable value was less than B/V. Thus, the ending asset total of $910,000 is a combination of carried-forward historical book values and current recoverable values.

Note that the year-end carrying value of the assets is less than the $1,005,000 shown in the problem because the writedown occurred only for those assets for which the recoverable value was less than B/V.