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BUSI 2001 Quiz: Tutorial chapter 10- assets held for sale


Department
Business
Course Code
BUSI 2001
Professor
Ouafa Sakka
Study Guide
Quiz

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BUSI2001- Intermediate Accounting I
Chapter 10 – Assets Held for Sale and Discontinued
Multiple Choice Questions
1) Which of the following statements are correct?
Under IFRS 5, when an asset is classified as held for sale…
i. The company should stop depreciating it.
ii. The asset has to be reclassified at fair value less costs to sell.
iii. Any impairment loss resulting from the reclassification of the asset should be reported net of
tax in the income statement as: loss from discontinued operations.
iv. The asset is presented under “current assets” in the statement of financial position.
The correct statements are:
a) i and ii
b) iii and iv
c) ii and iii
d) i and iv
2) You have the following information about an asset reclassified as held for sale On December 31,
2012 by a public company:
Statement of Financial
Position
Statement of Income
Asset held for sale
$200,000
Impairment Loss on assets
held for sale
$15,000
On December 31, 2013, the fair value less costs to sell the asset is determined to be $220,000.
Determine the impairment gain, if any, the company can record on this asset.
a) $0, public companies are not allowed to reverse impairment losses
b) $20,000
c) $15,000
d) $5,000

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a) $330,000
b) $320,000
c) $306,667
d) $303,333
4)
a) $470,000
b) $450,000
c) $430,000
d) $400,000

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Problem 1
On October 31, 20x4 the board of directors passed a resolution to put up one of the entity’s division
up for sale. The assets of the division had a carrying value of $4,000,000 at December 31, 20x4 after
deducting a full year’s worth of depreciation expense of $600,000. The entity estimated that the
division’s assets could be sold for $3,600,000 less
a commission of 6% of the sales price.
The income statement of the entity before consideration of the treatment of the
discontinued operation for the year ended December 31, 20x4 is as follows:
Revenues
$95,000,000
Cost of goods sold
(40,000,000)
Operating expenses
(35,000,000)
Depreciation expense
(5,500,000)
Income taxes (30%)
(4,350,000)
Profit for the year
$10,150,000
The income statement for the discontinued division was:
Revenues
$15,000,000
Cost of goods sold
(10,000,000)
Operating expenses
(6,000,000)
Depreciation expense
(600,000)
Income tax recovery (30%)
480,000
Loss for the year
($1,120,000)
Required -
(a) Prepare a revised statement of income for the year ended December 31, 20x4.
(b) Assume that the division was sold in 20x5 for total proceeds of $3,900,000. The income
statement of the division to the date of sale was as follows:
Revenues
Cost of goods sold
Operating expenses
Depreciation expense
Income tax recovery (35%)
Loss for the year
What is the gain or loss on discontinued operations that will appear on the entity’s income
statement for the year ended December 31, 20x5?
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