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Discontinued Operations

The document discusses three cases of discontinued operations. For Case 1, the pre-tax loss from the discontinued segment in 2020 is P1,000,000. For Case 2, the income from the discontinued segment reported in 2020 is P1,750,000. For Case 3, the loss from discontinued operations reported in 2020 is P1,680,000.

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215 views2 pages

Discontinued Operations

The document discusses three cases of discontinued operations. For Case 1, the pre-tax loss from the discontinued segment in 2020 is P1,000,000. For Case 2, the income from the discontinued segment reported in 2020 is P1,750,000. For Case 3, the loss from discontinued operations reported in 2020 is P1,680,000.

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CHAPTER VIII - DISCONTINUED OPERATIONS

INTERMEDIATE ACCOUNTING III

Case 1. On May 1, 2020, H Company approved a plan to dispose of a business segment. It


is expected that the sale will occur on March 31, 2020.
On December 31, 2020, the carrying amount of the assets of the segment was
P2,000,00 and the fair value less cost of disposal was P1,800,000.
During 2020, the entity paid employee severance and relocation costs of P100,00 as a
direct result of the discontinued operation.

The revenue and expenses of the discontinued segment during 2020 were:

Revenue Expenses
January 1 to April 30 1,500,000 2,000,000
May 1 to December 31 700,000 900,000

What amount should be reported as pre-tax loss from the discontinued segment for 2020?

REVENUE EXPENSES
January 1 to April 30 1,500,000 2,000,000
May 1 to December 31 700,000 900,000
TOTAL 2,200,000 2,900,000

Total Revenues 2,200,000.00


Total Expenses 2,900,000.00
Impairment loss ( 2M - 1.8M) (200,000.00)
Employee termination (100,000.00)
-
Loss from discontinued segment 1,000,000.00

Case 2. On October 1, 2020, L Company approved a formal plan to sell a business


segment. The sale will occur on March 31, 2021.
The segment had income of P2,500,000 from January 1 to September 30 and P500,000
for the quarter ended December 31, 2020.
On December 31, 2020, the carrying amount of the assets of the segment was
P4,000,00 and the fair value less cost of disposal was P3,500,000. The income tax rate is
30%.

What amount should be reported as income from the discontinued segment in 2020?

Income (2.5M + 500K) 3,000,000.00


Impairment loss (4M - 3.5M) (500,000.00)
Income before income tax 2,500,000.00
Income tax (30%) (750,000.00)
Net income 1,750,000.00
Case 3. Flanigan Company has two divisions, North and South. In 2002, the entity decided
to dispose of the assets and liabilities of Division South and it is probable that the disposal
will be completed early next year.

The entity reported the following revenues and expenses:

2020 2019

Sales –North 5,000,000 4,600,000


Total nontax expenses-North 4,400,000 4,100,000
Sales-South 3,500,000 5,100,000
Total Non-tax expenses-South 3,900,000 4,500,000

During the later part of 2020, the entity disposed of a portion of Division South and
recognized a pretax loss of P2,000,000 on the disposal. The income tax rate is 30%.

What amount should be reported as loss from discontinued operations in 2020?

Sales 3,500,000.00
Expenses 3,900,000.00
Operating loss (400,000.00)
Loss on disposal (2,000,000.00)
Total loss 2,400,000.00
Tax rate (30%) 720,000.00
Loss from discontinued operations 1,680,000.00

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