Question

Problem 4 On April 1, 2020 a company decided that it would sell off one of its major divisions which meets the criteria to be considered a component of the company. This represents a strategic shift for the company and though the division remained unsold at year-end (December 31, 2020), it met all the criteria to be considered Held-for-Sale. Income from Continuing Operations for the company in 2020 total $1,340,000. Operating income in 2020 for the division to be sold totaled $35,000. The book value of the division's net assets was $770,000 on December 31, 2020 and the company believed the net proceeds at sale of the division would be $850,000. The company's tax rate is 20%. How would the above appear on the company's income statement for the year ended December 31, 2020?

Answer 1

In the Preasent case, the company met all the criteria to be held for sale and the component remained unsold at the year-end. As per Ind AS 105, an operation is classified as discontinued only at the date on which the operation meets the criteria to be classified as held for sale or when the entity has disposed of the operation.

The Company's Income Statement for the Year ended December 31,2020 will be as follows:

Income Statement for the year ended December 31,2020

Particulars	Amount ($)
Revenue from Operations	1,340,000
Profit/Loss from the discontinuing Operations	92,000

Notes to the accounts:

1. Profit/Loss from the discontinuing operations:

Operating income from discontinued Operation	$35,000
Gain on assets transferred
Net proceeds received $850,000
Book Value of Assets $770,000
Gain on assets transferred	$80,000
Total Income from Discontinuing operation before tax	$ 115,000
Less: Tax expense @ 20%	$ 23,000
Profit/Loss from discontinuing Operations	$ 92,000