Question

Accurate answer needed please AS SOON AS POSSIBLE

On September 30, 20x3, the board of directors of a publicly accountable entity

made a decision to put up one of their business segments up for sale. Financial

data on the segment follows:

Segment’s assets

Carrying value $12,500,000

Fair value 10,000,000

Costs to sell = 8% of fair value

Segment’s income statement data

Revenues $16,000,000

Cost of goods sold 9,000,000

Operating expenses 4,000,000

Depreciation expense 1,500,000

Depreciation expense was calculated for the full year. The entity’s income tax rate

is 35%.

Calculate the gain or loss from discontinued operations for the year ended

December 31, 20x3.

Answer 1

Discontinued operations means part of a company core business that have been disinvestment and are reported separately from continuing operations in the finacial statements.

Step 1 Caclulation of Net income for the year ended 31 december 20X3

income statement particular Amount $ Amount $ 16000000 Revenue Less Items cost of goods sold Operating expenses Depreciation Disposed off cost 9000000 4000000 375000 800000 14175000 Profit before tax 1825000 6387501 Less Tax @ 35% Net Income 1186250

income statement particular Amount $ Amount $ Revenue 16000000 Less Items cost of goods sold 9000000 Operating expenses 4000000 Depreciation 375000 Disposed off cost 800000 =SUM(H11:H14) Profit before tax Less Tax @ 35% | =19-H11-H12-H13-H14] =116*35% =116-117 Net Income

Working Note:1

Calculation of Depreciation Expense Depreciation for Nine months = depreciation x 9 = $1500000 x 12 = $1125000 Calculation of Disposed off expense Dissposed off cost = Fair value x 8% = $10000000 x 8% = $800000 1