M5 - Income Statement: Discontinued Operations

Question 1

When is an impairment loss on an asset recognized when there is a formal plan to sell a component of a business?

Answer 1

The year in which the component is classified as held for sale.

Question 2

Note: When they give you a big example of discontinued operations and give you a tax rate, remember the answer is net of tax.

Answer 2

So take your answer and multiply it (1-tax rate)

Question 3

What is the criteria needed to meet “held for sale”

Answer 3

1. Management commits to a plan to sell the component.
2. The component is available for immediate sale in its present condition.
3. An active program to locate a buyer has been initiated.
4. The sale of the component is probable and the sale is expected to be completed within one year.
5. The sale of the component is being actively marketed.
6. It is unlikely that significant change to plan to sell will be made or that the plan will be withdrawn.

Question 4

What would a building being actively marketed for sale be valued at?

Answer 4

The lower of its book value or net realizable value. (Fair value less the costs to sell)