Exit or Disposal Activities and Discontinued Operations

Question 1

How do you determine if there is a gain on a disposal

Answer 1

Gain-if cash received > net book value
Loss-if cash received< net book value

Asset cost
-Accumulated Depreciation
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Asset net book value
-cash received
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
gain or loss

Question 2

What must entities disclose for significant disposals

Answer 2

1. Description of the facts and circumstances surrounding the disposal.
2. Expected manner and timing of the disposal
3. Gain or loss on disposal and where it is reported on the income statement.

Question 3

How do you calculate the income effect of discontinued operations?

Answer 3

It’s the net sum of the disposal gain or loss and operating income loss.

Question 4

How do you calculate the after tax net loss on the disposal of a division?

Answer 4

Calculate the net asset value (assets-liabilities) less the selling price. Then multiply the tax rate by the net loss or gain.